EU Grains Give Up Early Gains

03/09/13 -- EU grains traded firmer for much of the day, supported by ongoing trade concerns over Midwest dryness and sharply higher US soybean values overnight. That took Paris rapeseed prices up above EUR390/tonne for the first time in more than 7 weeks, dragging wheat and corn values a higher too. Lower trade in the afternoon CBOT open outcry session however ultimately dragged EU grains into negative territory at the close.

Despite a sharply higher soybean market, EU wheat values failed to find a great deal of traction, with price rises capped by cheaper offers out of the Black Sea. Egypt's latest tender was won by a combo of Russian, Romanian and Ukraine wheat all priced in the region of USD250-253/tonne FOB. French wheat was offered at USD263/tonne, and US wheat is currently indicated at around USD276/tonne.

At the close both Nov 13 and Jan 14 London milling wheat settled GBP0.75/tonne easier at GBP157.90/tonne, and EUR160.15/tonne respectively. Nov 13 Paris milling wheat fell EUR1.25/tonne to EUR188.75/tonne and Nov 13 Paris rapeseed settled EUR2.50/tonne firmer at EUR389.50/tonne.

The US soybean crop may be getting smaller, but the outlook for oilseed production elsewhere this year is increasing, not least here in our own backyard. Strategie Grains now estimate the EU-28 OSR crop at 20.8 MMT, up almost 7% on last year's 19.5 MMT. They also increased their outlook for the EU-28 sunflower crop to 8.4 MMT, up 20% on last year. Faced with sluggish demand from the EU biodiesel industry and a large sunseed crop, demand for rapeseed in the EU is expected to show a year-on-year decline in 2013/14.

A large rebound in OSR production in Ukraine, most of which will be for export, will also cap demand for the oilseed here.

Whilst wheat and corn prices have nudged a bit firmer from the mid-August lows it would not be beyond the realms of possibility to see both return to retest those values in the coming weeks. In the case of London wheat the mid-Aug closing low was GBP150.75/tonne, with the low on Paris wheat EUR182/tonne and on Paris corn EUR164.50/tonne.

A bearish influence for corn is the impending new crop harvest both sides of the Atlantic. Ukraine values in particular could be the thing that drags European corn and wheat lower again. New crop Ukraine corn is currently priced around USD198-200/tonne FOB the Black Sea (circa GBP127.50-128.50/tonne).

The main challenge that lies ahead for Ukraine is getting this year's record harvest physically onto the market, although that doesn't mean that the threat of it won't be enough to depress prices further yet. The Ukraine Ministry have set a target for grain exports (not including by-products) of a record 30 MMT in 2013/14, yet they've only managed to ship 3.8 MMT of that in the first two months of the new campaign - on paper they need to be aiming for around 2.5 MMT/month minimum to meet that target, and that excludes making allowances for the inevitable weather disruptions in the midst of a Ukraine winter.

Russia meanwhile have also exported 3.8 MMT of grains in the Jul/Aug period, say IKAR, that's up from 2.9 MMT in the same period a year ago. Almost all of that (3.0 MMT) is wheat.

The Russian grain harvest trundles along at 61.7 MMT off 55.9% of the combinable crop area. Yields are averaging 2.39 MT/ha, a 26.5% rise on last year. Barley yields aren't great, at 2.05 MT/ha they're "only" up 15% on 2012, but wheat yields are coming in much better at 2.79 MT/ha, 43% more than last year. The Russian Ministry have left their 2013/14 grain production estimate unchanged at 90 MMT, with wheat accounting for "at least" 50 MMT of that total.

Russia's largest wheat export home in 2012/13 was predictably enough Egypt at 2.7 MMT, followed by Turkey in second at 2.1 MMT. There are concern surrounding demand from both in 2013/14. Egypt's problems are well documented, despite a recent spate of 7 tenders since the beginning of July, prior to that they'd bought nothing at all for 4 months. They say that they will only need to import a total of 5 MMT of wheat in 2013/14 versus 8-10 MMT normally.

Turkey meanwhile have had a decent harvest this year, with wheat, corn and barley production all seen up around 8-12%. Responding to the Turkish Grain Board new protein-based wheat procurement policy, farmers there increased their use of certified seeds for the 2013 harvest. This should cut back on their 2013/14 wheat import requirements, which will also be impacted upon by the devaluation of the Turkish lira.

The French National Institute of Statistics say that domestic grain prices in July were down 3.3% versus June and down 17.7% compared with July 2012. Wheat prices were down 4.9% versus June and 20.2% compared to July 2012, whilst oilseed prices fell by 11.8% and 21.0% respectively, they add.

The recent dry weather is seen disrupting barge movements on the Lower Rhine and the Danube.

A report on the ADAS website suggests that Ensus will run a trial on triticale when the plant re-opens. They are clearly keeping their options open. Ukraine corn will doubtless also feature in the mix of possible feed stocks to return the plant to profitability.