EU Grains Rise On Consolidation

19/08/13 -- EU grains closed higher (with the exception of malting barley) on bargain hunting, short covering, consolidation, call it what you will. It's probably far too early though to say that a bottom has been found and that we've turned the corner just yet.

London wheat closed with Nov 13 GBP0.95/tonne higher at GBP153.55/tonne, Jan 14 was also GBP0.95/tonne firmer at GBP155.80/tonne and Nov 13 Paris wheat rose EUR0.75/tonne to close at EUR184.50/tonne.

The Russian grain harvest now stands at 50.8 MMT off 42% of the planned area, with average yields of 2.63 MT/ha, up 31% versus 2.01 MT/ha a year ago. That's not quite a "return to normal" of the average yield of around 2.81 MT/ha as of mid-August 2011 however. The wheat harvest so far accounts for 35.2 MT/ha of that, off 46.2% of the planned area, with average yields of 3.00 MT/ha representing a near 39% increase on a year ago at this time.

There are still a few rumblings that final production and yields may not ultimately be as high as the Ministry currently project, although these fears have failed to manifest themselves so far - if we accept the above numbers as being genuine.

The Ministry say that Russia exported 1.45 MMT of grains in the Aug 1-15 period (including over 1.2 MMT of wheat), bringing the cumulative 2013/14 marketing year to date total to almost 4 MMT, nearly 33% up on a year previously.

It's been warm and dry in Ukraine for the past month, allowing farmers to wrap up the early grain harvest in a timely manner. The Ukraine Weather Centre say that these conditions will prevail until at least the end of the week, which may not ultimately prove to be quite so beneficial for corn. Nevertheless a record 2013 Ukraine corn crop is widely expected, and Agritel today said the it might be "difficult or impossible" for growers there to make more than EUR100/tonne ex farm for corn this year.

If so, that could still put further downwards pressure on wheat prices once the 2013 Ukraine corn harvest begins.

The US grain market also had a consolidation sort of a day today, supporting EU prices, after the weekend weather there finished up drier than expected. As well as some still talking about an early frost threat, we now also have others talking of a much hotter forecast for later in the week also causing potential damage to yields.

It's difficult to see how we can have a frost and a heat threat all at the same time, but with funds holding a record short position in corn anything that spooks them either way leaves that market vulnerable to a correction to the upside until we have some more clarity on final yield potential across the pond.

On the demand side of the coin, escalating unrest again in Egypt appears to be responsible for keeping state buyer GASC out of the market last week, for the first week in six. China appear to have retreated into their shell for now, although Jordan has a 100,000 MT wheat tender pending. European wheat is at least finding good interest however, with soft wheat export licenses so far double those of a year ago, but this is before competing new crop corn also comes onto the market.

In other news, Agrimoney reported that "the era of rising European Union production of biofuels based on food crops is over," according to USDA staff here. An apparent change of heart by the European Commission, who are now proposing to cap the percentage of biofuels used from food sources to 5% as opposed to the previous limit of 10%, is behind the re-evaluation.

Europe's largest biodiesel maker, Diester Industrie, said recently that it was to close two French plants with a combined capacity of almost that of Ensus because of the move.

Separately, new stats out of Germany reveal that whilst gasoline usage was down 3.3% year on year in the first half of 2013, bioethanol usage was down more than twice that level at -6.9%.