EU Wheat Mixed, Weak Euro Supports Paris Market

26/02/13 -- EU wheat futures closed mixed, with Paris wheat supported by a potentially weaker outlook for euro following yesterday's inconclusive Italian elections. US wheat set fresh 8-month lows in overnight trade as heavily moisture-laden snow storms pass across the Great Plains and into the Midwest. Dollar strength (at a 6-month high yesterday) is also weighing on US wheat.

Mar 12 London wheat finished down GBP1.10/tonne to GBP201.05/tonne, benchmark May 13 was GBP0.15/tonne lower at GBP205.00/tonne and new crop Nov 13 was GBP0.45/tonne easier to GBP185.00/tonne. Mar 13 Paris wheat rose EUR3.00/tonne to EUR242.75/tonne.

Various US state crop reports show an improvement in winter wheat conditions compared with a month ago, although things are far from ideal. Kansas wheat rated in good/excellent condition improved from 20% last month to 23% now, with the proportion of Oklahoma wheat rated in the top two categories increasing from 5% to 9%, and wheat in Texas from 14% to 18%.

Even so, 36% of Kansas wheat is rated as being in poor/very poor condition, along with 54% of Oklahoma wheat and 45% of the crop in Texas. In Oklahoma 26% of the crop has already been given up on and is being grazed, versus 7% a year ago and 16% for the 5-year average.

Ukraine's state weather centre said that only 9% of winter grains had perished and will need replanting in the spring versus 25% this time last year. They estimate 2013/14 grain production to rebound 20-30% from last year's 46.2 MMT -suggesting a crop of around or even better than 2011's output of 56.7 MMT. That would almost certainly make them aggressive early season exporters. The Ukraine Ministry say that 34,000 hectares of spring grains have already been planted due to favourable weather conditions.

Russia's winter grains aren't in such fine fettle, with around 12.6% likely to need replanting in the spring versus around 8% on average. "Very hot and dry planting conditions occurred last fall in the Southern District with only 25-50% of normal precipitation September-November. Wheat sprouting and emergence was sub-par in the 4 key oblasts Stavropol, Krasnodar, Rostov and Volgograd," say Martell Crop Projections. "Russia winter wheat potential was boosted by heavy January precipitation. Three of the 4 key growing areas received more than 2 inches of precipitation replenishing dry fields in Rostov, Krasnodar and Volgograd. However, February weather has reverted back to a very dry pattern with hardly any moisture at all this month," they add.

The Russian Ministry estimate spring grain plantings at 30.2 million ha, or 97.9% of the level sown in 2012. The Ministry are estimating total grain production for 2013/14 at 95 MMT versus the Russia Grain Union's estimate of 90 MMT, both are well above the 70.7 MMT produced in 2012/13.

India keep plugging away with wheat offers, reportedly getting a best bid of just over USD300/tonne FOB (around GBP198/tonne) for 70 TMT put up for tender for March shipment out of the east coast port of Chennai.

Japan are said to have bought a cargo of US Chicago wheat for feed usage yesterday for shipment in April at USD285/tonne FOB (circa GBP188/tonne).

As long as fund money is content to sell corn and wheat the market looks set to drift lower. The large fund short that now exists in CBOT wheat does leave the market vulnerable to a sharp upside correction at some point, but what might trigger such a move, and when it could come, is anybody's guess at this stage.