Nogger's Blog

31/12/13 -- EU grains closed mixed, but mostly a little lower to end the year, in extremely quiet trade. Only 21 lots changed hands in London wheat, and less than 8,000 in Paris wheat in holiday-shortened trade.

Jan 14 London wheat closed unchanged at GBP163.75/tonne, Jan 14 Paris wheat finished EUR0.25/tonne easier at EUR209.00/tonne, Jan 14 Paris corn was unchanged at EUR171.75/tonne, whilst Feb 14 Paris rapeseed dropped EUR0.50/tonne to EUR366.50/tonne. Essentially, European wheat is still in the same sideways pattern that it's been stuck in for the past 2 1/2 months, although the year-on-year picture looks decidedly different.

The year of 2013 saw nearby London wheat finish GBP41.50/tonne lower than it began it, a fall of 20 percent. Paris wheat fared a little better, falling EUR41.25, or 16.5% during the course of the year. Paris rapeseed fell EUR90.25/tonne, or almost 20% and Paris corn was the sector's biggest loser, shedding EUR66.00/tonne for a near 28% slump year-on-year.

The massive recovery in the global corn crop in 2013, up more than 100 MMT versus 2012, to a record 964 MMT is one of the main reasons responsible for price declines in the grain sector this year. That said, the world has also produced a record 711 MMT wheat crop in 2013 too.

As ever, it's not just how large the crops are, it's who's got them.

In the case of corn, big production increases this year have come from America, Europe (particularly Eastern Europe), Ukraine and Russia - all major exporting nations - and apart from the US, countries infamous for being not too fussy about price. In the case of America, Ukraine and Russia this year's corn production was also an all time high.

Wheat production in 2013 meanwhile was up sharply in Europe, Canada, Australia, Russia, Ukraine and Kazakhstan - again all major exporting nations.

Ukraine will become the world's largest grain exporter after America in 2013/14, shipping 32.5 MMT abroad, according to their Ag Ministry - a leap of 41% on last season. They've already shipped more than half that total, 18.48 MMT to Dec 30, so it is an achievable target.

What will 2014 bring? Reduced US corn plantings following Chicago prices staging their worst yearly performance "since at least 1960" according to Bloomberg, and "the worst on record" according Reuters. This may be partially compensated for by a return to trendline yields, but it's far too early to say. What we can be fairly confident about though is that both Russia and Ukraine will plant even more corn this spring than they did in 2013, so increases on this year's record production there already looks quite likely.

It also seems likely that Europe and America will harvest a larger wheat crop in 2014 than this year, given average yields.

Meanwhile, the carry-in to next season is also likely to be higher than it was at the start of the current campaign. The USDA currently have 2013/14 world wheat ending stocks forecast 4% higher at 183 MMT, with global corn inventories seen up 20% to more than 162 MMT.

That's the fundamentals taken care of, however one of the other main reasons for the decline in global grain prices this year I think can also be attributed to the withdrawal of fund/spec money from agri-commodities.

According to Agrimoney over the last nine weeks speculators have "chalked up their longest bearish switch in positioning on agricultural commodities on record, official data showed, as another raw material hedge fund said it is to close because of the trouble raising capital."

Whether they will return anew in 2014 remains to be seen, but currently the odds seem stacked against it.