Nogger's Blog

14/03/13 -- EU wheat futures closed higher, rebounding from the recent multi-month lows on signs of a pick up in world demand after the USDA reported strong weekly export sales for wheat, and the largest weekly shipments of the current marketing year.

On the day, London wheat closed with Mar 13 up GBP1.75/tonne to GBP195.25/tonne and new crop Nov 13 GBP0.50/tonne higher at GBP183.50/tonne. May 13 Paris wheat was EUR1.50/tonne firmer at EUR234.50/tonne.

Private US exporters reported sales of 888,500 MT of old crop wheat for the week through to Mar 7, along with a further 198,500 MT of new crop. Sales needed each week to hit the USDA old crop export estimate are now only 353,300 MT/week. On top of that, weekly shipments of 787,100 MT were a marketing year high. This suggests that maybe the USDA were a little hasty in lowering their 2012/13 US wheat export forecast last week.

Everybody is talking about US wheat being gobbled up in place of expensive, and scarce, corn. Whether it's to domestic US feeders, ethanol manufacturers, Japanese buyers, there is also now talk that Mexico may have cancelled US corn purchases and replaced them with Chicago wheat.

If you want old crop wheat, and aren't on India's doorstep or don't want to risk their quality issues, then US wheat remains the cheapest option. Why else would Iran be sniffing for US wheat?

Of course this window of opportunity won't last forever, Black Sea sellers will be mighty keen to undercut both India and the US at the first available opportunity for new crop. There's talk that the Russian government will step in to replenish their depleted intervention stocks come harvest time, should prices there fall sufficiently low, which may restrict their usual early season aggression. Even so, Russian sellers have reportedly been conducting new crop business at heavily discounted levels into the Middle East lately.

Strategie Grains cut their EU-28 soft wheat production forecast for the coming season by 600 TMT to 131.6 MMT, that amounts to a 3.4 MMT reduction since their first forecast for 2013/14 was released in December, although it still represents a 5% increase on output last year. Accounting for half of that downgrade was the UK, who's production potential was cut to 12 MMT, although there will be plenty of growers out there who think that this estimate is still way too high.

The remainder of the reduction this month was largely down to cuts in plantings in France, Poland and Italy. The former two will see an increase in corn acreage from that forecast last month, which led the French analysts to raise their corn production forecast by 0.5 MMT to 66 MMT, an increase of 16% on last year. Barley output was left unchanged at 55,5 MMT, a modest 1% rise on 2012/13.

They said that winter crops are "generally in good condition" although they noted the lack of snow cover may leave some vulnerable to the current cold snap that is being experienced across much of the continent.

Rouen's weekly grain export total rose 86% on last week to 170 TMT, including 109 TMT of soft wheat and 61 TMT of barley, said Bloomberg.

FranceAgriMer yesterday raised their 2012/13 French soft wheat ending stocks estimate from 2.42 MMT to 2.60 MMT, a 14% rise on last season. A reduction in exports within the EU was largely to blame, these are seen down 10.6% year-on-year to 6.725 MMT. Corn stocks were forecast up 14.1% versus 2011/12 at 2.78 MMT and their barley carryout is seen 75.6% higher than year ago levels at 1.69 MMT.

IKAR estimate the Russian wheat crop at 50 MMT this year, say Bloomberg. That's up by almost a third on the USDA's 2012/13 crop figure of 37.7 MMT.