Nogger's Blog

13/09/13 -- EU grains closed mostly lower on harvest pressure and the increasing size of the global wheat and corn crops to record levels, along with a sharp recovery in barley production. Rapeseed was dragged higher by firmer soya prices in Chicago last night, following the news from the USDA yesterday that US soybean stocks look set to remain tight for another year.

Nov 13 London wheat settled GBP1.15/tonne easier at GBP152.50/tonne whilst Jan 14 was GBP0.70/tonne lower at GBP155.45/tonne. Nov 13 Paris milling wheat slipped EUR0.50/tonne to close at EUR186.25/tonne. Nov 13 Paris rapeseed was up EUR4.50/tonne to EUR376.00/tonne on the notion that rapeseed prices offer value relative to soya.

For the week, Nov 13 London wheat fell GBP5.00/tonne, with Paris wheat down a more modest one euro, whilst Paris rapeseed was still EUR6.25/tonne easier despite today's price hike. The firmer pound hasn't helped London wheat's cause again this week, and today was Friday the 13th after all.

Wheat prices remain under pressure from the impending arrival of the world corn crop, one that is expected to be record large in size - almost 100 MMT higher than last year and up more than 70 MMT on the existing all time high set in 2011/12. World trade in corn meanwhile is seen less than 1 MMT up on that previous record year in 2013/14.

Another negative for wheat is the size of this year's barley crop, both domestically and on a global level. The world barley crop was forecast almost 10% than last year in yesterday's USDA report at 141.7 MMT. The crop in Europe is up 6.5%, led by sharp increases for Spain, up nearly 55%, and the UK which is seen having a production increase of 23% this year.

The very high level of wheat imports into the UK in 2012/13 meant that carryover stocks into 2013/14 were far higher than you would have expected given the sharp drop in production last year. Even with a second successive poor production year in 2013 we've probably still got an exportable surplus of 500-750 TMT this season, yet we've only so far applied for export licences for a paltry 3,600 MT of soft wheat, according to the latest numbers from Brussels. To put that into perspective, Cyprus, Austria and Finland are ahead of the UK in the EU soft wheat export table right now.

On an EU level though exports are roaring away. The USDA yesterday raised their forecast for EU-28 wheat exports to a record 23 MMT, which is 800 TMT ahead of last season. So far Brussels have issued soft wheat export licences for 5.2 MMT already in 2013/14, more than double where we were at this time a year ago. France and Germany are neck and neck in the lead with a little over 1.5 MMT worth of export licences each, with Romania plugging on stoutly in third with 911 TMT worth - more than 250 times the volume that the UK have currently been granted.

The UK do at least lie sixth in the EU barley export table, having currently been granted a little over 80 TMT worth of export licences. Germany top that table with just over 1 MMT, and the French are second with a little over 700 TMT worth.

If this were a school report it would probably read something like: Name: UK; Subject: barley - must try harder; Subject: wheat - never heard of him.

At least we do have some much brighter samples of wheat and barley domestically this year, although unfortunately that also means that the premiums for quality are also much lower than 12 months ago.

The minutiae of yesterday's USDA report reveals minor upward tweaks to UK production estimates, with the wheat crop here raised from the 11.9 MMT forecast last month to 12.1 MMT now. The UK barley crop was increased from 6.75 MMT to 6.8 MMT and the domestic OSR crop was raised from 1.9 MMT to 2.0 MMT.

As ever, a glance at the "cheap seats" provides a useful barometer. Russia and Ukraine are set to harvest their largest corn crop on record, and by some considerable distance. Russia will harvest 9 MMT and Ukraine 29 MMT, according to the USDA. Some private estimates are a million tonnes higher on each, potentially giving them a combined crop of 40 MMT, more than half of which will go for export.

That means that both countries are now producing around three times the volume of corn that they were just 3-4 years ago. A combination of favourable weather, the planting of newer varieties and generally adopting a more Westernised approach is behind this trend - not to mention last year's high corn prices.

Russia's wheat crop was estimated at 54 MMT yesterday by the USDA, a 43% rise on last year. They've already harvested 43 MMT of wheat with around a third of the planted area still left to go, which even allowing for the fact that what's left to harvest will be lower yielding spring wheat, suggests that final production could in fact be closer to 60 MMT.

The USDA increased their forecast for the Ukraine wheat harvest by half a million tonnes yesterday to 22 MMT, a near 40% hike on last year. That crop is already in the bin, and in some cases has already been exported.

Meanwhile Kazakhstan are in for a 17 MMT wheat harvest, a near 73% jump on production in 2012, according to the USDA. The shady old Kazakh Ministry are only currently forecasting an entire grain crop of 15 MMT - although the fact that they've already harvested more than 7.5 MMT off 40% of the planted area suggests that their estimate may be too low.

As well as much larger wheat and corn crops in 2013, these three FSU nations will also see a sharp jump in barley production this year. Russia's barley crop is seen rising nearly 22% to 17 MMT, with Ukraine's up 8% to 7.5 MMT and Kazakhstan's 47% higher a 2.2 MMT. Ukraine's barley exports are forecast by the USDA to hold steady at 2.2 MMT, but Russia's will jump 43% and Kazakhstan's will more than double.