EU Wheat Stabilises, For Now
07/02/14 -- EU grains finished mostly higher on the day, and with some half decent gains for the week. Paris wheat seems to have found a floor at EUR190/tonne, at least for the time being. Likewise old crop London wheat at around GBP150/tonne and new crop at around GBP140/tonne.
The session closed with Mar 14 London wheat ending up GBP0.50/tonne at GBP154.50/tonne, whilst new crop Nov 14 London wheat ending GBP0.30/tonne firmer at GBP146.05/tonne. Mar 14 Paris wheat was EUR0.75/tonne steadier at EUR194.75/tonne, Mar 14 Paris corn was unchanged at EUR174.50/tonne, whilst May 14 Paris rapeseed fell EUR1.50/tonne to EUR376.25/tonne, but still managed to post a respectable EUR14.00/tonne gain for the week.
Old crop Mar 14 London wheat gained GBP5.00/tonne versus last Friday, with new crop Nov 14 up GBP3.30/tonne. Mar 14 Paris wheat finished the week EUR2.25/tonne higher than it began it, whilst Mar 14 corn added EUR1.00/tonne for the week.
As you can see, London wheat fared better than it's Parisian counterpart largely due to a decline in sterling which fell close to 1.20 against the euro versus nearly 1.22 last Friday.
Having spent all of January in decline, the wheat market appears to have found its level and now wants to trade sideways until more is known about world production prospects for 2014 later in the spring.
The Russian and Ukraine Ministries say that all is well, the Russians said this week that 65% of their winter crops are in good condition, with 31% satisfactory and only 4% poor. Ukraine said that 58% of their winter crops are "good" and a further 36% "satisfactory" - leaving 8% rated as "weak/thinned" - some of which will be replanted when spring arrives.
Come the spring we will also have a better handle on the EU supply and demand balances. Currently, as we all know, EU wheat exports are racing ahead, with export licences already granted for 18.2 MMT of soft wheat, 490 TMT of wheat flour and 425 TMT of durum. Combined, that's 73.5% of the USDA's forecast for the season.
As wheat goes out, corn comes in. Brussels have also granted corn import licences to the tune of 7.4 MMT so far this season, or 82% of the USDA's target for the marketing year.
In the UK specifically, it seems pretty likely that the current official estimates from Defra are understating both corn and wheat import totals and overstating wheat demand from the Human & Industrial sector - particularly from the bioethanol industry. Vivergo are still only stumbling along and Ensus are said to be using more corn than they are wheat at the moment.
Feed manufacturers also currently have all sorts of other options open to them rather that to buy wheat, with the likes of wheatfeed, barley and oats all offered at substantial discounts to wheat. There may therefore be more wheat around domestically come the spring than the market currently expects in such a low production year.
Generally speaking though it is probably going to take a rise of more than GBP5.00/tonne, from what was after all a 25-month low, to entice those sitting on old crop wheat to part with it now. If the market wants it, then the market is going to have to pay up for it, right?
That also probably seemed like a very good strategy 12 months ago. On this very day in 2013 the May 13 London wheat contact commanded a premium of almost GBP23.00/tonne over new crop Nov 13. By the time the May contract expired it was trading at a GBP2.00/tonne discount to the new crop - a very impressive fall from grace.
