EU Grains Mixed But Mostly Higher On The Week, Has The Decline Been Arrested?

21/06/13 -- EU grains closed mixed, with front month Jul 13 London wheat closing the gap between it an new crop November from a cavernous GBP8/tonne, based on last night's close, to a more reasonable looking GBP2.75/tonne tonight.

Jul 13 London wheat finished the day GBP5.00/tonne firmer at GBP167.50/tonne, and with the more active new crop Nov 13 ending GBP0.25/tonne lower at GBP170.25/tonne. Nov 13 Paris wheat rose EUR0.50/tonne to close at EUR200.50/tonne.

For the week as a whole Jul 13 London wheat was up GBP4.25/tonne and Nov 13 up GBP4.95/tonne. Nov 13 Paris wheat was EUR4.25/tonne higher and Aug 13 Paris rapeseed was down EUR6.00/tonne.

What we need to know now is whether the start of a price decline that began around late November/early December for London wheat, and accelerated during the first two weeks of the month (during which Jul 13 lost almost GBP22/tonne), is now over or are we merely pausing for breath.

In Europe, crop production in 2013 looks set to return to close to "normal" levels. Coceral today estimated the EU-28 soft wheat crop at 130.7 MMT, up 4.2% on last year, with durum output rising to 8.8 MMT, a 9.2% increase. That gives us an all wheat crop of 139.5 MMT this year, exactly the same as Strategie Grains forecast yesterday (although their split was 131.5 MMT and 8.0 MMT), and just over 2 MMT more than the USDA currently project.

For barley Coceral estimate a crop of 56.3 MMT, up 3.6% on last year, versus 56.1 MMT from Strategie Grains and 55.6 MMT from the USDA. For corn they predict output at 66.2 MMT, up 15.7%, and versus 66.0 MMT from Strategie Grains and the USDA's 63.9 MMT. For rapeseed production Coceral estimate 19.9 MMT, up 2.2% on 2012 and versus 19.7 MMT from the USDA and 19.72 MMT from Oil World.

The 5-year average for wheat production in the EU-27 is 138.9 MMT, add on around 600 TMT for Croatia and this year's projected output according to Coceral and Strategie Grains is bang on "average".

Production in the UK this year however is likely to be anything but average for a second year running. Coceral estimate the wheat crop here at 11.76 MMT, down 11.6% on last year's disaster, and the lowest output since 2002. Things are better for barley, as you might expect, with the full crop estimated at 6.45 MMT, up 16.6% on last year thanks to a 25% jump in plantings. Coceral had the UK wheat area at 2.0 million hectares and barley plantings at 1.6 million for the 2012 harvest. This year those two figures have essentially been transposed by the wretched British winter weather.

Coceral forecast the UK rapeseed crop at 1.92 MMT in 2013, down 25.3% on last year, and similar to the USDA's 1.90 MMT estimate.

The Black Sea grain harvest is starting to gather pace. Russia is already at the 1 MMT mark, and Ukraine is very close. The Russian Ministry say that they've harvested 228k ha of mostly winter barley so far, with average yields up 50% versus the same time a year ago at 4.49 MT/ha. The Ukraine Ministry say that they've harvested 950 TMT of winter grains, again mostly barley, with early yields also significantly better than at this stage in 2012.

Rusagrotrans meanwhile say that the spring grain sowing campaign in Russia is finished, and at almost 31 million ha will be the largest area sown since 2008. Low levels of winterkill (6.3% versus 8-10% normally) mean that the winter grain harvested area will be 14.5 million ha, versus 13.91 million last year and 13.95 million in 2011, they say. They now forecast Russian grain production this year at 97-100 MMT, up around 30% on last year's crop.

The Russian Ag Minister raised his estimate for grain production there from 93 MMT to 95 MMT, including 54 MMT of wheat (an increase of 43% on last year). Winter wheat harvesting in the south is expected to pick up pace next week and be in full swing by the first week of July.

Closer to home, FranceAgriMer increased their winter wheat and winter barley good/excellent ratings by one point each from last week to 69% and 68% respectively.Spring barley rated in the top two categories was left unchanged from last week at 72%. Spring barley at the heading stage jumped from only 23% a week ago to 80% as the crop finally got a bit of sun on its back (although that's still below the level of 98% for the same week a year ago).

There's still some nervousness over corn though. Plantings only advanced from 92% complete a week previously to 95% done, with some analysts suggesting that around 3% of the intended crop might not get sown due to heavy rains persisting in some areas.

Overall, the threat of a glut of cheap Black Sea grain soon coming flooding onto the market should outweigh limited production concerns in some parts of Europe, and could bring further downside pressure to the grains sector yet.