Nogger's Blog

18/10/13 -- EU grains closed sharply higher, with Nov 13 London wheat up GBP3.65/tonne to GBP166.60/tonne, Nov 13 Paris wheat EUR5.00/tonne higher at EUR204.50/tonne and Nov 13 Paris rapeseed up EUR1.50/tonne at EUR378.00/tonne.

For the week, Nov 13 London wheat was up GBP3.60/tonne, with Nov 13 Paris wheat EUR5.25/tonne higher and Nov 13 Paris rapeseed EUR5.25/tonne firmer.

These were 3-month highs for London wheat and 4-month highs for Paris wheat. This was also the largest one day gain for London wheat since Aug 26. Some traders undoubtedly got spooked into covering their shorts today, some still believe that a deluge of new crop corn starting to come through on both sides of the Atlantic will ultimately drive the market back lower.

A surprisingly low government estimate for a wheat crop of only 8.8 MMT in Argentina this year, versus 8.2 MMT in 2012/13, is what caught the market's attention today (versus the old September estimate of 12 MMT from the USDA). Whilst one might normally take what the Argentine government say with a pinch of salt, particularly with an election coming up, there are concerns that there could be some truth in this particular forecast following frosts earlier in the year and persistent dryness issues throughout the growing season.

Now it may well be that this low estimate is an excuse to slap yet another limit on Argentine wheat exports next year, indeed the local milling industry have already asked the government to do this to help build their razor tight reserves. "What can we do when we've only had a wheat crop of 8.8 MMT? Our hands are tied, blame the weather," the government would argue to growers who have a long history of dissatisfaction with government interference in the wheat and corn export markets.

An export cap would also potentially also reduce soaring bread prices for the populace, in a country where inflation is unofficially said to be running at an estimated 25-30% versus the 10.5% reported by the national statistics agency.

The reason that today's news got the market all excited is that Brazil have been buying heavy volumes of US wheat lately. We know that they have had their own production problems in 2013, and that means that they are again likely to be large importers in the season ahead. Whether Argentina's crop will ultimately prove to be as low as 8.8 MMT or not, if the government are going to restrict exports as now looks likely, then Brazil will need to continue to import much of their wheat needs from outside the Mercosur trade bloc. And that probably means mainly from the US.

The Argentine government only estimated 2013/14 wheat exports at 2 MMT versus 3.1 MMT in 2012/13, and 11.4 MMT two years ago. The USDA estimated Argentine wheat exports in 2013/14 at 6 MMT last month.

The Buenos Aires Grain Exchange meanwhile were more stoic, estimating the 2013/14 Argentine wheat crop at 10.35 MMT, unchanged from their previous estimate and up 17.6% from a year ago, but that was largely ignored - it was the 8.8 MMT figure that grabbed the headlines.

Whilst the Argentine wheat crop does certainly appear to be smaller than the USDA said last month, the market is also virtually ignoring the fact that the Canadian crop is getting larger. The September USDA estimate of 31.5 MMT has subsequently been usurped by a variety of estimates, the latest of which from the Canadian Farm Ministry pegs output at a record 33.2 MMT.

Of course we won't have the opportunity of seeing some revised estimates for production in either of those two countries, or indeed any other, from the USDA now until the November WASDE report - and that's still three weeks away.

One final thing that the trade has not really been focusing on this week is the fact that Russian and Ukraine winter grain plantings, the sluggish pace of which were largely responsible for dragging this market off the lows, have picked up significantly in the past fortnight. How these late planted crops will come out of the winter however still remains to be seen.

Nevertheless, Russian winter grains have now been planted on 12.1 million hectares, or 74% of the originally planned 16.4 million. That's behind last year's pace of 15.1 million, but a lot better than was thought likely a couple of weeks past (plantings were at 8.2 million ha a fortnight ago). Ukraine now say that they may only miss their winter planting target by 500,000 hectares, far less than the 1.5 million feared a few weeks ago.

The Russian grain harvest now stands at 86.1 MMT off 88.3% of the combinable area. Wheat accounts for 52.2 MMT of that off 92.7% of plan. That would suggest that a wheat crop of maybe 55-56 MMT in bunker weight should be feasible this season. We can generally knock off a further 5-7% to convert this to clean weight. Last year's clean weight wheat crop was 37.7 MMT

Closer to home, FranceAgriMer say that French winter wheat is now 39% planted versus 23% last week and 18% this time a year ago. At 65% done, the winter barley crop is up from 43% last week and more than double the 31% sown this time in 2012. Corn harvesting however is only 6% complete versus 27% done in 2012.

On the international tender front, Israel bought 25 TMT of Black Sea origin feed wheat for Nov/Dec shipment, along with 80 TMT of Black Sea origin corn for Dec/Feb shipment. Tunisia bought 75 TMT of milling wheat and 67 TMT of durum wheat, both of optional origin for Nov/Dec shipment.