EU Grains Paint The Town Red

24/06/13 -- EU grains began the week on the defensive, taking their cue from weaker US wheat markets Friday night and again this morning. Chicago wheat turned sharply lower in afternoon trade once the CBOT open outcry session got underway, adding to the negative tone.

Jul 13 London wheat finished the day GBP4.00/tonne lower at GBP163.50/tonne, and with Nov 13 ending down GBP2.75/tonne at GBP167.50/tonne. Nov 13 Paris wheat settled EUR4.00/tonne easier at EUR196.50/tonne.

Paris rapeseed also extended its recent dismal run, with front month Aug 13 closing EUR5.75/tonne lower at EUR405/00/tonne, breaching the 2011 front month lows and closing in on a potential dip below EUR400/tonne for the first time since  Oct 2010.

Some of the current weakness can be attributed to harvest pressure. Reports out of the US suggest that the winter wheat harvest has progressed into Montanna and is likely to begin in Ohio by the end of the week. Yields out of the top producing state of Kansas are said to be variable, but better than expected overall.

European prospects also seem generally favourable. There's even optimistic talk that the UK crop might yield a bit better than feared, and that quality could actually be pretty good this year.

In Russia, the spring planting campaign is complete at 30.6 million hectares, say the Ministry. The spring wheat area is 12.7 million ha, down just over 300k on last year. The spring barley area is up almost 250k ha on year ago levels at 8.4 million ha and the corn planted area is now seen at 2.3 million ha, over 400k ha higher than last year.

The barley harvest is now well underway in the south and a bit of early wheat has also been cut. The wheat harvest should be full steam ahead by the end of next week.

An Iranian wheat tender closed on Sunday, with the lowest offer said to be a joint venture between Serbia and Hungary at USD311.67/tonne C&F. Russian wheat was said to have been offered at USD318.29/tonne versus US wheat priced in at over USD400/tonne. The tender is for 50 TMT but they usually buy considerably more.

It's not all about harvest pressure though, outside influences are also at play. The commodity market has the jitters following last week's statement from Fed Chairman Ben Bernanke that the US could soon start reigning in it's hitherto "free and easy" approach to QE. A slowdown in Chinese growth is also a cause for concern.

The latest commitment of traders report from the CFTC shows funds cutting their net long in corn and soybeans last week, whilst adding to their wheat shorts in the week through to last Tuesday night.

The trade is expecting meanwhile that the USDA will report US soybean plantings up around the 95% complete region tonight, along with a 1-3% point gain in good/excellent ratings. Corn crop conditions may improve 1-2% good/excellent, with spring wheat performing likewise, whilst the winter wheat harvest is seen advancing to around 25% done versus 11% a week ago.

Oct13/Apr14 wheatfeed pellets in the south east of the UK reportedly traded at GBP140/tonne ex mill on Friday, with sellers over at the price and no buyers today. That means we're unlikely to see a queue of feed compounder buyers lining up to book wheat at current levels just at the moment, even if London wheat has dropped around 20% since the turn of the year.