EU Grains Mostly Lower, Outside Influences Weigh

18/03/13 -– EU grains were mixed but mostly lower on the day, pressured by outside influences and weaker US markets. News of the Cypriot bail out, and the possible wider implications for the rest of Europe and beyond, got the week off to a cautious start.

London wheat closed with Mar 13 down GBP1.30/tonne at GBP193.35/tonne and new crop Nov 13 GBP0.40/tonne lower at GBP182.75/tonne. May 13 Paris wheat was unchanged at EUR234.75/tonne.

The timing of the bailout announcement was clearly timed to coincide with a Cypriot bank holiday today, and there are reports that the banks may remain closed tomorrow (and possibly longer) to avoid mass over the counter cash withdrawals after ATM's were drained at the weekend.

The market will be thinking to itself, well if this can happen in Cyprus then why can't it happen in Italy or Spain, and what would be the consequence of much larger removals of cash deposits with the banks in those countries? Could indeed the Cypriot move encourage such a cash exodus elsewhere?

If there's one thing the market doesn't like then it's uncertainty. Mid-morning the screens were a sea of red, with stocks, grains, crude oil and softs all lower. Only the safe haven of gold was green, although later in the day most Paris wheat had at least managed to crawl into some positive territory on the back of euro weakness.

These latest development will do little to encourage fund money to come flooding back into the grains however, a sector that they've already been actively getting out of for the past couple of months.

Sterling has bounced off it's recent lows against the dollar and euro in the past week or so, but it should be noted that the minutes of the March Bank of England's MPC meeting come out on Wednesday. They could show an increased likelihood of more QE sooner rather than later.

Back to the fundamentals, Coceral pegged the EU-28 soft wheat crop at 127.8 MMT on Friday, or 127.0 MMT if we exclude Croatia for comparison with last year's production. With an 8.3 MMT durum wheat crop this year that gives us an EU-27 all wheat crop of 135.3 MMT, only a little over 3 MMT, or 2.3%, higher than last year's output (using the USDA's latest figures).

They have output in the UK down a further 10% on last year's disaster at a smidgen under 12 MMT. French all wheat production is seen lower too, although only marginally at 38.0 MMT. It's Germany (+5%) and Eastern Europe where the gains are seen being made, with Poland +8%, Hungary +10%, Bulgaria +12%, Romania +22% and the Czech Republic +23%.

The EU-28 barley crop is basically forecast unchanged at 54.8 MMT, although UK output is seen up 17.5% courtesy of a 34% rise in spring barley plantings. The EU-28 rapeseed crop is forecast at 20.05 MMT, up nearly 2.8%, although output in the UK is set to drop 25% to 1.92 MMT, they predict.

Across the Pond: "More precipitation is coming to the Central Great Plains this week. Wheat in Kansas and northern Oklahoma are expecting 0.25 to 0.75 inch of moisture, a mixture of rain and wet snow Wednesday night-Saturday that would improve soil moisture," said Martell Crop Projections. That should further improve things for winter wheat.

The export tender line-up for this week is average at best so far. Libya are in for 30,000 MT of milling wheat, Iraq’s 50,000 MT tender is pending until March 28th and Bangladesh are in for 50,000 MT. Jordan also issued a new tender for 100,000 MT of soft wheat over the weekend.

Russia's Deputy Ag Minister said the the country would produce 80 MMT of grains this year, which is "only" 11.5% up on last year, according to the Interfax News Agency. That number is well below the official Ministry estimate of 95 MMT issued last week.