EU Wheat Recovers, But Remains Still Well Below Pre-USDA Levels

03/04/13 -- The volatility continues. Today it was the turn of EU wheat futures post decent gains, even if they did finish well off the intra-day highs.

On the day, London wheat closed with front month May 13 up GBP1.40/tonne to GBP199.30/tonne and new crop Nov 13 up GBP2.95/tonne at GBP184.35/tonne. May 13 Paris wheat was EUR3.75/tonne firmer at EUR240.5W/tonne.

Even so we still haven't yet recovered to the pre-USDA report levels of last Wednesday night when May 13 London wheat closed at GBP204.00/tonne, Nov 13 at GBP189.25/tonne and May 13 Paris wheat at EUR246.75/tonne.

US wheat futures led the market higher on concerns over winter crops there, and European grains were happy to follow given our own worries over output in France and the UK in particular. The Met Office today confirmed that March was the UK's joint second coldest since records began more than 100 years ago.

Russia has a few problems too, particularly in the leading winter wheat areas to the south. The Ag Ministry today cut their 2013/14 grain production estimate from 90-95 MMT to 90-92 MMT, similar to IKAR's forecast, although still a little more optimistic than SovEcon's latest forecast of 83-89 MMT.

The Russian government sold a further 53,635 MT of grains at their latest twice weekly intervention auction today, bringing the total volume sold so far to 2.67 MMT.

Things look better in Ukraine though, where the Ministry today said that field work had resumed in some areas following the recent heavy snow. They say that spring planting has now been completed on 701,000 ha, which is around 24% of the planned area. Winter grains are said to be 91.8% good/satisfactory, and only 500,000 ha will need replanting versus 2.3 million ha a year ago. Yields should obviously benefit come harvest time.

Tunisia were today said to have bought 42 TMT of durum wheat and 25 TMT of feed barley in a tender that they passed on last week due to price. Japan bought 32,320 MT of feed wheat in a tender and is also in the market for a further 120 TMT of feed wheat and 200 TMT of feed barley for July shipment.

Concerns over US winter wheat prospects are what really fuelled today's fire though. Crop conditions have barely changed across a winter in which the crop entered dormancy in its worst ever state. Essentially, though they've had some moisture lately in the main wheat growing areas of the Plains, it's been nowhere near enough.

"Showers in the southern Plains are improving moisture a bit for wheat, but much more rainfall is needed across much of the belt to significantly reduce long term dryness. Warmer temperatures across the Plains later this week and over the weekend will allow soil temperatures to increase, and wheat to continue to break dormancy," said MDA CropCast.

The problems for US winter wheat began before the crop was even in the ground, due to a hangover from the summer drought that cut corn and soybean production across the country. "Extremely low field moisture was confirmed on a September vegetation image showing widespread drought in the 5 top hard red wheat states. Wheat germination and emergence was seriously retarded in the October planting period. Consequently wheat entered dormancy with a shallow root system and reduced plant populations," say Martell Crop Projections.

"Extremely dry fall planting conditions were the beginning of trouble for winter wheat. When fields are dry through a deep layer, it is very difficult for wheat to recoup yield potential," they say.

There are parallels with the situation in Russia. "Russia’s southern winter wheat faces similar challenges, and is not expected to make a profitable yield because of poor growth in the fall. August-September planting conditions were extremely dry, leading to weak root establishment and stunted growth. All 4 key winter wheat districts were affected by drought - Stavropol, Krasnodar, Rostov and Volgograd - placing 60% of Russia winter wheat in jeopardy. The October-December 2012 precipitation was severely deficient leading to very dry soil conditions as wheat slipped into dormancy. "

Although March was particularly wet in southern Russia, "stunted wheat damaged by fall drought may not recover. The struggle against drought continues despite March wetness, due to deep-soil dryness," they add.