London Wheat Ends At 19 Month Low

14/08/13 -- EU grains closed mostly lower, with front month Nov 13 London wheat extending its losing streak to ten straight sessions.

London wheat closed with Nov 13 GBP3.35/tonne lower at GBP151.15/tonne, Jan 14 was GBP3.40/tonne easier at GBP153.10/tonne and Nov 13 Paris wheat fell EUR1.75/tonne to EUR182.00/tonne.

Nov 13 London wheat finished at the lowest close for a front month since January 2012 even though we are about to harvest our smallest crop in years. Why?

Following yesterday's news that the UK had imported almost 3 MMT of wheat in the year recently ended - the most since 1978 - an interesting report on suggested that some UK millers may have got used to regular uniform supplies of imported wheat in a hassle-free manner. They might now be reluctant to switch back to home produced wheat, it is inferred.

Of course they will switch, given a sufficiently large price incentive, but whether that is a pound, a fiver or more remains to be seen. What we also don't know is how much foreign wheat have they already committed to?

UK farmers have hitherto been reluctant sellers of wheat, and perfectly understandably so given the uncertainty surrounding yields and quality. It was a subject of common discussion at Cereal 2013 among the merchants that forward contracted volumes were much lighter than in a normal year. Again this is hardly a surprise given that many oversold their crop last year and had a financial penalty to pay.

With little forward domestic wheat offered, UK feed compounders have been forced to look elsewhere and have been merrily filling their boots with cheap Eastern European and Black Sea corn instead. Large volumes are already lined-up to be shipped in as soon as new crop supplies become available a couple of months from now.

Besides highlighting the increased domestic usage of imported wheat (and corn) in 2012/13, yesterday's import/export stats also said that June wheat exports were unusually high and were in fact the largest since November. This would appear to suggest that old crop stocks were/are higher than many expected, and therefore carry-in to 2013/14 will be fairly sizable considering that we only produced 13.3 MMT of wheat last year. It is likely that much of the old crop that is left is not of great quality too.

So we have a situation where, despite facing an even smaller UK crop than last year in 2013, there appears to be plenty of old crop wheat about, some of it and quite possibly most of it, of questionable quality. We also have an end user that feels comfortable with imported wheat or corn, and in some cases already has plenty of that forward bought. In addition, the UK producer probably has much more of his wheat left to sell (I suspect in many cases 100% of it) as he prepares to fire up the combine than would normally be the case.

Meanwhile, the Ukraine Ministry upped their forecast for August grain exports from 1.5-1.7 MMT to 2.0 MMT, saying that demand is high. They forecast 2013/14 grain production at a record 57.1 MMT, up almost 24% on last year. They currently see exports this season also at record levels - beating the existing all time high of 24.5 MMT set in 2011/12 by 3.5 MMT at 28.0 MMT.

Other estimates are even higher. Local analysts APK Inform today forecast Ukraine's 2013/14 grain exports at 30.4 MMT, up 30% on 2012/13, including 18 MMT of corn, 9.5 MMT of wheat and 2.5 MMT of barley.

The Hungarian Ag Ministry forecast their wheat crop up 27.5% this year to 5.1 MMT, with exports expected to rise to 2.0 MMT in 2013/14.

Germany's DRV today raised their wheat production estimate to 24.35 MMT from 24.07 MMT and up 8.8% versus 22.39 MMT last year. They also increased their rapeseed production estimate to 5.86 MMT from 5.58 MMT and up 30% versus 4.5 MMT.

The USDA's FAS office in Morocco said that the country had harvested 9.7 MMT of grains this year, including 5.1 MMT of wheat, a rise of 91% versus 2012. Consequently their wheat import requirements will fall 50% to 2.0 MMT, they added.

Brussels issued 694 TMT of soft wheat export licences this week, the highest weekly total of the marketing year so far. That brings the 2013/14 marketing year to date total to 2.65 MT. Of that total France, as you might expect, has so far applied for licences to export the most (836 TMT) followed by Germany (774 TMT). What you might not expect is to see Romania in third slot at 587 TMT.

The UK incidentally has so far only applied for licences to export 2,050 MT of wheat in 2013/14. Brussels has meanwhile granted import licences for 125 TMT of soft wheat to come into the EU so far and the UK is the leading applicant taking 54 TMT of those.