Nogger's Blog

27/03/13 -- EU wheat futures closed firmer on fears over potential crop damage in Europe and the US caused by the uncooperative weather, short-covering ahead of tomorrow's USDA reports and continued strong demand.

On the day, London wheat closed with front month May 13 up GBP2.50/tonne to GBP204.00/tonne and new crop Nov 13 up GBP2.75/tonne at GBP189.25/tonne. May 13 Paris wheat was EUR1.75/tonne firmer at EUR246.75/tonne.

"Field moisture has deteriorated sharply in the past 2 weeks with hardly any rainfall in the southern Great Plains. Texas is particularly dry, with growers reporting 75% short-very short topsoil moisture. Nearly 50% of topsoil moisture was short or very short in Oklahoma and Kansas wheat," said Martell Crop Projections.

"Emerging drought is bad timing for wheat development as jointing is getting underway, demanding good moisture to support rapid vertical growth in wheat. Oklahoma wheat was already 40% jointing, while Kansas wheat was just beginning to joint. Wheat development in Oklahoma was set back by a hard freeze last week. Lasting damage in wheat does not occur in the jointing stage, though growth would be set back. If a hard freeze coincides with flowering, the damage is permanent and severe. In 2009, an April freeze produced devastating losses in Oklahoma wheat, with crop production falling more than 50% below the previous growing season," they noted.

Meanwhile in Texas, temperatures over the past three nights have dipped low enough to potentially cause "severe injury to wheat in advanced stages of growth," one agronomist said.

In Europe, crops in the UK and France in particular, are also under threat. The EU Commission today cut their soft wheat production forecast here from 131.1 MMT to 129.8 MMT, although that still represents an increase of 5% on last year's drought-hit crop. Even so, production potential has been declining steadily across a difficult winter. In their first look into 2013/14 back in December Strategie Grains were originally forecasting EU soft wheat production rising 9% to 134.2 MMT this year.

Wheat's loss is however barley's potential gain, with the EU Commission increasing their forecast for 2013/14 barley output from 54.6 MMT to 56.0 MMT, and up 4% versus 53.9 MMT last year.

Despite paring back it's soft wheat production estimate, the Commission increased their 2013/14 forecast for exports of the same from 16.5 MMT to 16.9 MMT in the face of continued strong demand.

Brussels issued 426 TMT worth soft wheat export licenses this past week, bringing the marketing year to date total to 15.12 MMT. All wheat exports now stand at over 16.0 MMT and only need to average 266 TMT/week to hit the USDA's projection of 19.5 MMT for the current campaign.

At home, Defra tweaked our domestic grain supply and demand numbers a little for 2012/13. They increased UK wheat imports from the 2.19 MMT forecast in January to 2.26 MMT, which marks a 149% increase versus 2011/12. Corn imports were also nudged higher from 1.19 MMT to 1.29 MMT, up 30% year-on-year.

Wheat for human and industrial usage in the UK was reduced slightly due to "lower than previously forecast flour production, further evidence of corn use for ethanol and the fact that new bioethanol capacity is yet to be fully operational," they said. Most of that reduced offtake is switched to feed usage though, due to the cold and wet March leading to an increase in compound feed demand, they added.

In other news, Russia sold a further 60,895 of intervention grain at what has become their regular twice weekly offering. That takes the total volume sold since October to 2.546 MMT, interestingly of that 1.8 MMT of the grain sold has been from the 2008 harvest. Almost 95% of the 2.546 MMT of grain sales has been wheat.

Agritel report that domestic Russian wheat prices have fallen from EUR300/tonne to EUR265/tonne during March due to the large inverse between old and new crop prices. Confidence in a fairly decent crop in 2013 seems to be gradually improving. Lanworth Inc today increased their forecast for Russian wheat production in 2013 from 49.8 MMT to 50.4 MMT, a rise of a third on output last year. They are also pretty bullish on Ukraine, where they peg this year's corn crop at 26.4 MMT, up 26% from 2012's 20.9 MMT.