EU Wheat Declines, Fund Money Continues To Desert Commodities
04/03/13 -- EU wheat futures closed sharply lower, dragged down by a sluggish US market under pressure from recently much improved weather on the Great Plains heartland of US winter wheat production. More storm systems due this week could bring a further moisture boost of up to 0.7 inches, forecasters say.
As seems to unfortunately be the case these days, money flows are more important than ever in deciding price direction in commodities. A report on Bloomberg today says that Friday's Commitment of Traders Report from the CFTC shows funds pulling a record USD4.23 billion out of commodities in the week through to Feb 26. Speculative long holdings, including positions in a selected set of 11 agri-commodities from wheat to coffee, currently stand at the lowest level since March 2009, they note.
On the day London wheat closed with front month Mar 13 down GBP1.50/tonne at GBP202.00/tonne, May 13 falling GBP2.75/tonne to GBP204.25/tonne and with new crop Nov 13 down GBP2.50/tonne to GBP185.15/tonne. Mar 13 Paris wheat was EUR2.75/tonne lower at EUR247.25/tonne, whilst May 13 slumped EUR5.00/tonne to EUR234.75/tonne.
Weakness in the pound, which hit 1.50 against the dollar again today, helped London wheat a little even though the large volume of imports into the UK that we have already seen mean that merchants appear to still have plenty of wheat about them to sell. Consumers seem largely well-covered and are sitting on their hands however.
There are signs of an international pick up in demand for wheat though, Saudi Arabia bought 575 TMT of mostly 12.5% protein hard wheat (the purchase also included 110 TMT of 11% soft wheat) for Jun/Aug delivery in a weekend tender. Lebanon issued a fresh tender for 50 TMT of milling wheat and Tunisia are also said to be tendering for soft wheat. A Syrian tender for wheat closes today and a Jordanian one on Wednesday, the results of both are expected to be made public within a day or two of their deadlines.
Meanwhile US corn prices are now running at a premium to wheat, versus an average discount of over USD1.50/bushel over the past ten years, according to Bloomberg. This should stimulate both domestic and international demand for US wheat - Japan bought Chicago milling wheat to use as feed in preference to corn in a recent purchase.
That said, a Bloomberg survey still forecasts 2012/13 US wheat ending stocks to be raised from 691 million bushels last month to 702 million this time round in Friday's upcoming USDA report. Ahead of that we have Australia's ABARES first forecast for 2013/14 grain production Down Under due tomorrow, along with Stats Canada's quarterly stocks report.
It could be another rocky week for sterling. Thursday is the conclusion of the March meeting of the Bank of England's Monetary Policy Committee, with a possibility that recent economic news may encourage an increase in QE. BoE governor Mervyn King voted in favour of more stimulus at last month's meeting, but was out-voted 6-3 as you may recall. Apparently the last time King was out-voted enough committee members subsequently changed their minds and sided with him to push an increase through the following month.
The vibe coming out of the Black Sea is that prospects for cereal output in Ukraine this year are very promising. UkrAgroConsult today increased their forecast for 2013 grain production from 51.85 MMT to 53.0 MMT, a rise of nearly 15% on last year. The President of the Ukrainian Grain Association is forecasting grain exports of 32 MMT in 2013/14, an increase of 39% on the current season.
The Ukraine Ministry reported today that the country shipped 1.67 MMT of grains in February, up from just under 1.5 MMT in January. Only 184 TMT of that was wheat though, with corn (1.4 MMT) accounting for by far the lion's share. Grain exports for the full 2012/13 season to date are 17.85 MMT, up 32% versus 13.5 MMT this time last year. The local Farmer's Confederation said last week that they expect wheat exports to resume next month.
Winter grains that have failed and will need to be replanted account for only 3-5% of the planted area, according to the Ukraine Ministry. Last year it was estimated that 25% of the crops sown in winter 2011 had to be resown again in spring 2012.
FranceAgriMer reported on Friday that good/very good crop conditions in winter wheat and barley were unchanged from a week ago at 66%. They also said that spring barley plantings were running at 7% complete, considerably less than 19% this time last year.
The benign weekend weather will have spurred plenty of drilling activity and fieldwork both at home and on the continent in the past few days. "Drier conditions were noted across much of the region this past weekend, but showers are expected to build back into Spain, southern France, and Italy this week. The showers will help to further improve moisture for early wheat growth in Spain and far southern France, but the rains in central Italy will maintain some wetness there," said MDA CropCast. Rains are also set to return for much of the UK starting Wednesday the forecasts say.
