EU Grains Close Firmer, London Wheat Overpriced?

21/08/13 -- EU grains closed firmer, with nearby Nov 13 London wheat closing GBP1.45/tonne higher at GBP155.45/tonne and with Jan 14 also up GBP1.45/tonne to close at GBP157.70/tonne. Nov 13 Paris milling wheat settled EUR1.00/tonne higher at EUR185.50/tonne.

Note that this puts Nov 13 London feed wheat at only around a historically low GBP3.00/tonne discount to Paris wheat.

I still believe that corn holds the key to where the wheat price goes going forward. Nov 13 Paris corn closed at EUR169.75/tonne, a substantial discount to wheat. New crop French corn FOB Bordeaux is offered in the market at EUR168/tonne, the equivalent of around GBP143.50/tonne.

A report on suggests that given the larger than anticipated UK carryover wheat stocks from 2012/13 (courtesy of imports of almost 3 MMT), potentially better than expected production (12.5 MMT being floated) and another year of substantial imports already on the books then domestic supply should comfortably outstrip demand in 2013/14. The article suggests UK wheat prices have a further GBP4-6/tonne downside if we end up needing to export wheat this season.

Hopes for supporting UK wheat prices are being pinned on improved demand from the UK's dithering stop/start bioethanol industry, which sadly hasn't proven to be too reliable a crutch on which to lean on up to now.

Jordan bought 100 TMT of wheat overnight for Feb/Mar shipment. The wheat was optional origin, but the seller was Ukraine-based. Their usage requirement is on the increase following a large influx of Syrian refugees. Other than that the international tender market is quiet at the moment.

French and Ukraine wheat are offered in the market at around parity, and some USD20/tonne cheaper than US wheat which should continue to boost export demand for EU and Black Sea origin material. Malaysia bought 45 TMT of Ukrainian corn for Oct shipment at a significant discount to US corn today.

Stats Canada forecast all wheat production there at 30.6 MMT, slightly higher than the 30.4 MMT that the trade was expecting and a 22 year high. They put 2013 rapeseed production at 14.7 MMT, up 11.5% on last year, but well below the 15.5 MMT that the trade anticipated.

In contrast to Western Australia's Minister for Agriculture and Food's prediction yesterday that wheat production in the state would only come in at around 6.2 MMT in 2013, CBH Group, the state's largest grain handler, forecast output at 7.5 MMT. "In the last month, we've had very good rainfall and our crop forecast has improved dramatically," they said. Australia is set to see more showers over the next 10 days.

China were said to have bought 55 TMT of Australian wheat for Dec shipment. That takes Chinese wheat purchases from Australia to around 2.2 MMT for 2013/14, with some analysts forecasting that they will buy around 4 MMT from them this year. The USDA has total Chinese wheat imports at around 9.5 MMT this season, with much of the remainder coming from the US although they have also bought smaller volumes of French and Canadian wheat.

SovEcon estimated Russia’s August grain exports at 3.1-3.2 MMT versus 2.6 MMT in July and 2.9 MMT in August 2012. Trade rumblings continue to suggest that wheat quality isn't great in Russia this year.