EU Wheat Under Pressure From High Corn Imports
09/01/14 -- It was another brutal day for EU grains, with London wheat slumping to the lowest levels on a front month since Oct 1 and new crop Nov 14 setting fresh contract lows.
Jan 14 London wheat finished the day down GBP3.70/tonne at GBP155.80/tonne, whilst new crop Now 14 London wheat ended GBP1.00/tonne lower at GBP147.25/tonne. Jan 14 Paris wheat fell EUR4.75/tonne to EUR199.25/tonne for a first close below EUR200/tonne since mid-October. Mar 14 corn was down EUR1.75/tonne to EUR171.00/tonne, whilst Feb 14 Paris rapeseed managed to recover some of yesterday's losses, closing EUR1.50/tonne higher at EUR358.00/tonne.
London wheat dipped close to GBP150/tonne back at harvest time, before recovering to develop a sideways pattern around the GBP163-166/tonne range in which is stayed from mid-October through to the end of the year. So where has it all suddenly gone wrong in 2014?
The answer seems to lie with corn, not wheat. As well as a record US corn crop to contend with, the EU market also has a record Eastern European and Black Sea corn harvest on it's doorstep. In the aftermath of a corn harvest that's not long been finished, we now have lots and lots of it arriving here.
Hence Brussels usurping an impressive looking EU soft wheat export licence total of nearly 1 MMT over the festive fortnight with an even larger corn import licence total of 1.2 MMT. Much of that will be coming from Ukraine who've exported a record corn volume in each of the last two months.
With this in mind, the trade is already looking at the new crop situation, and it seems to currently be thinking is this all going to happen again 12 months from now?
Current forecasts indicate that Europe is probably in for a wheat crop at least equal to (say Informa), if not 2% higher (Strategie Grains) than last year. We are also probably looking at an EU-28 corn crop modestly higher than last year.
The key to the matter though may be that both Ukraine and Russia will almost certainly have larger corn crops again in 2014 than their recently harvested record 2013 production. This situation will be foisted on them courtesy of an enforced reduction in winter grains area due to excessive wetness at planting time in the autumn/early winter.
UkrAgroConsult today forecast a 2014 Ukraine grain harvest 6% higher than last year, including a 5.6% rise in corn production. In fact they even estimate the 2014 Ukraine wheat crop higher despite reduced winter plantings, up 3%, courtesy of an anticipated improvement in yields.
Strategie Grains say that their anticipated rebound in wheat production in the EU will likely be spearheaded by the UK, Sweden and Denmark who will harvest an extra 5.8 MMT of wheat between them this year.
UK wheat plantings are forecast 22% higher for the 2014 harvest at around 2 million hectares. A recovery to anything like "normal" yields also would see production here leap 25% or even more.
