EU Wheat Stages Modest Recovery

27/02/13 -- EU wheat futures closed generally firmer, recovering some of the recent losses, aided by US wheat rebounding from 8-month lows set on Tuesday. The latter may have more to do with the looming month-end prompting fund short-covering than anything else though. Funds have built up a near record short in Chicago wheat futures, contributing to recent price declines, leaving the market vulnerable to a corrective bounce to the upside as and when they turn buyers.

On the day London wheat closed with front month Mar 13 up GBP0.35/tonne at GBP201.85/tonne, May 13 rising GBP0.35/tonne to GBP2-5.35/tonne and with new crop Nov 13 GBP0.30/tonne firmer at GBP185.30/tonne. Mar 13 Paris wheat was EUR3.75/tonne higher at EUR246.50/tonne.

US wheat futures have been under pressure of late due to a sudden and dramatic improvement in weather conditions in the heart of winter wheat country. "Drought is rapidly resolving in the Southern Great Plains following back-to-back snow storms. The winter precipitation map now indicates surplus precipitation in Kansas, Oklahoma and Texas - the 3 leading hard red winter wheat states. While the deep soil layer is still dry from intense autumn drought, prospects for wheat growth in the spring are enormously improved with heavy winter precipitation. Soil profiles would be recharged with heavy snow melt from successive storms," said Martell Crop Projections.

"Winter precipitation is now well above normal in the main bread wheat states Kansas, Oklahoma, Texas, Colorado and Nebraska. Subsoil drought however still remains a big concern, particularly in Oklahoma where a 3 inch soil moisture deficit accrued October 2012 -February 2013," they noted.

Based on last night's close Chicago wheat is down 7.75% since Feb 1, yet Paris wheat has only fallen by a much more modest 0.8% in that time (from EUR248.50). This can partly be attributed to a 4% fall in the value of the euro against the US dollar during this time, and perhaps also to the continuing strong demand for EU wheat, with exports up 46% on year ago levels as of last week.

London wheat meanwhile is down 5.85% since the turn of the month despite also having 3.4% fall in value against the US dollar itself. A factor there perhaps of zero export interest whilst wheat imports are running at record levels.

Egypt announced that they had wheat stocks of 2.29 MMT - enough supply to last 95 days. That's only around half of normal levels as they generally tend to carry around 6 months worth of inventories. Current imports in 2013 are only running at around a third of normal levels, prompting some to suggest that a tendering spree isn't far away from the world's largest wheat buyer.

It may be a bit more complicated than that however, with others of the opinion that the government are strapped for cash amidst domestic political turmoil and a rapidly decreasing Egyptian pound. It may in fact be that they will soon start to focus their buying efforts on the domestic market, wheat harvesting in Egypt usually starts in April.

On the international tender front Saudi Arabia are in for 110 TMT of soft wheat and 440 TMT of hard wheat for Jun/Aug shipment. South Korea bought 60 TMT of optional origin feed wheat, probably Indian, for Jun arrival overnight. Bangladesh bought 50 TMT of optional origin wheat for Mar shipment at USD331.88/tonne CIF. That is also most likely to be of Indian origin, with Indian actively selling wheat at around USD300/tonne FOB.

India’s state-owned PEC issued a new tender today to sell 200 TMT of wheat for March shipment.

Russia sold a further 64,782 MT of government owned intervention grain onto the local market. They are expected to have only minimal intervention stocks left at the end of the season (estimates are around 300 TMT) and are likely to be looking to replenish those once new crop comes along. That would reduce the surplus volume available for export in 2013/14.

Russia’s Ag Ministry said that the country has exported 13.7 MMT of grain so far this season, down 31.5% versus 20.0 MMT this time a year ago

Ukraine said that it has exported 3.3 MMT of grains so far in 2013, with the vast majority of that - 2.7 MMT - being corn as wheat supplies dry up and traders hit the government's "informal" ceiling of 6.3 MMT for the season. Total 2012/13 marketing year to date grain shipments are 17.6 MMT, up 36.4% on last season.