EU Grains Down Again, Is The Glass Half Full Or Half Empty?

28/06/13 -- EU grains closed lower across the board, with rapeseed on the receiving end of a particularly bad thrashing again today.

On the day London wheat closed with the Jul 13 future down GBP2.30/tonne to GBP155.70/tonne and new crop Nov 13 was also GBP2.30/tonne weaker at GBP164.60/tonne. Front month Nov 13 Paris wheat fell EUR3.00/tonne to finish the day at EUR193.75/tonne. Aug 13 Paris rapeseed ended EUR6.50/tonne weaker at EUR393.50/tonne, other months slumped as much as EUR9.00/tonne.

For the week as a whole that puts Jul 13 London wheat down GBP11.80/tonne, or down 7% versus last Friday's close. Nov 13 London wheat fell GBP5.65/tonne on the week, or 3.3%. Nov 13 Paris wheat slipped EUR6.75/tonne, or 3.4%. Aug 13 Paris rapeseed slumped EUR17.25/tonne, or 4.2%.

London wheat is now at the lowest levels for a front month since January 2012, for Paris wheat these prices are the lowest since December 2011, and we haven't seen French rapeseed futures prices this low on a front month since October 2010.

So where has it all gone wrong? Some of the answer might lie outside of the normal supply and demand fundamentals, with a finger of suspicion pointing at our old chums the funds. These gentlemen have taken their bat and ball home and gone to find their amusement elsewhere it would seem. Whilst tonight's closing levels might look like a catastrophe from a growers perspective, they only look bad in relation to the dizzy heights to which city whizz kids Tarquin and Peregrine drove them up to. We are actually still above the 5-year averages for both London and Paris wheat (GBP150.13/tonne and EUR191.46/tonne - yes, I really have worked them out to the penny).

The reason that the "smart money" wants out is down to last week's suggestion from the US Federal Reserve chairman Ben Bernanke that the cheap money era might be about to come to an abrupt end. That shouldn't be such an enormous surprise, as has been noted before they simply cannot keep throwing USD85 billion into the US economy every single month forever. The patient has to be weaned off the morphine at some point.

The patient just doesn't like what it sees once the drugs wear off, it would seem. It doesn't see a golden glow that's for sure. The yellow metal has just had it's worst quarter in at least 45 years, according to Reuters. It could be worse than that, they're not sure, as their quarterly records only go back to 1966.

Gold has lost 25% in the April/June period, London wheat has shed 22% during the same period, Paris wheat 19% and Paris rapeseed a "mere" 17%. The grains are onto a winner relative to poor old gold!

Tarquin and his chinless buddies will be back, you can be sure of that. We just don't know when that will be, so for now it looks like we are back to trading the fundamentals. Effectively these include generally average crops in Western Europe, and a strong rebound in production from "cheap as chips" Eastern Europe and the FSU nations.

The HGCA report that 15% of the UK wheat crop is in poor/very poor condition, with 57% rated as good/excellent. Crop development remains 10-14 days behind normal, with only 14% of the national crop expected to have completed flowering by the end of June versus 60% this time last year and an average of 90% between 2009-2011. Winter barley is rated 73% good/excellent and for spring barley it's 78%.

Winter rapeseed is only rated 31% good/excellent, and for spring rape it's 52%. Winter rapeseed development is "well behind" normal say they HGCA. Only 12% of the crop is at seeds full size and green stage. In the last four years crops at the end of June were 60-100% at seeds full size and green, they note.

FranceAgriMer said that 69% of the French soft wheat crop is rated good/excellent, unchanged from a week ago. Winter barley good/excellent is down one point versus last week to 67%, spring barley is unchanged at 72% and durum wheat is down five points in the top two categories to 57%.

There's more concern over the French corn crop. Sowing of that only advanced from 95% complete to 96% done during the past week, suggesting that some of the intended acreage isn't going to be sown at all The rain and low temperatures that are hindering sowing in some parts of Europe (Germany and Italy have also been hit) may also ultimately end up clipping yields too.

FranceAgriMer pegged only 55% of what corn has been sown as being in good/excellent condition, down three points on last week and versus 74% this time last year. Only 67% of the crop was at the stage of six to eight leaves visible compared to 95% at the same point last year.

US company Weather Services International said earlier in the week that they expect most of Europe (with the exception of the Nordic region) to experience a cooler than normal Jul/Sep period. They didn't make a prognosis on rainfall.