London Wheat Rises, But Held Back By Sterling Strength And Large Imports

14/02/14 -- EU grains were mixed but mostly a little higher. Love may have been in the air today on Valentine's Day, but not for the US dollar it wasn't, that fell to the lowest level against the pound since 2009 on the weekly chart, with sterling closing just shy of 1.6750 against the greenback. The British currency also rose to a 1-year high against the euro on a more positive outlook for the UK economy relative to that in Europe.

Mar 14 London wheat ended GBP1.25/tonne higher at GBP152.50/tonne, whilst new crop Nov 14 gained GBP0.90/tonne to GBP147.00/tonne. Mar 14 Paris wheat was up EUR2.00/tonne to EUR198.50/tonne, Mar 14 Paris corn was EUR0.25/tonne lower at EUR172.25/tonne, whilst May 14 Paris rapeseed jumped EUR4.75/tonne to EUR383.00/tonne.

The Bank of England raised growth forecasts in its quarterly inflation report this week, and hinted it may raise interest rates next year and that they would keep on rising to the dizzy heights of around 2% by the end of 2017. In Europe meanwhile, there's talk that the ECB may actually introduce negative deposit rates to tackle the growing threat of deflation.

Sterling now finds itself in the unusual position of being the market's currency of choice. All this will potentially help the UK import even more wheat and corn over the coming months, whilst further restricting exports (of not just wheat but barley too, of which we still have a very large surplus left to dispose of).

That has put old crop London wheat under pressure, which despite today's rise, was lower for the week. The Mar 14 contract ended the week GBP1.90/tonne lower, whilst Nov 14 managed a rise of GBP0.95/tonne - further narrowing the old crop/new crop spread.

Front month Mar 14 Paris wheat though posted a EUR3.75/tonne gain for the week, with Mar 14 Paris corn down EUR2.00/tonne and May 14 Paris rapeseed adding EUR6.75/tonne.

Figures out this week showed that the UK imported almost 400 TMT of corn in December alone - the largest single monthly volume on records going back to 1992. Wheat imports in the last month of 2013 meanwhile were up 26% versus November, contrary to Defra expectations of a significant slow-down.

Defra currently have UK wheat imports for 2013/14 at 1.63 MMT. We've already imported more than 82% of that total in the first half of the season. In addition we've imported 65% of their forecast for corn imports the marketing year in the first six months of it. These very high levels of imports are what is keeping old crop under pressure.

New crop is just about managing to keep it's head above water, unlike much of the south of the country, on concerns that the widespread flooding there may ultimately have a negative impact on yields and production this year. However, the outlook for another bumper world corn crop in 2014/15 could once again drag UK new crop wheat prices lower too later in the year, regardless of production volumes here.

Across the Channel, the opposite is true. The Mar/Nov 14 old crop/new crop inverse widened this week from EUR9.75/tonne to EUR10.50/tonne. The very strong pace of old crop exports remains an underlying factor. Brussels cleared 315,000 MT of soft wheat export licences this week, taking the total since the beginning of the marketing year to 18.5 MMT, up 53% versus 12.1 MMT this time last year.

Although there are also excessive wetness issues in northern Italy, western France and western Spain too, overall Europe as a whole should still bring in a 2014 wheat crop 2% higher than last year's, and the third largest on record, Stategie Grains said this week.

Russia announced today that it was to freeze it's twice-weekly intervention purchase program, making only one more such round of buying next Tuesday. Since the government resumed buying after the Christmas and New Year break the rouble has declined markedly, and grower interest in the prices being paid has waned to a trickle. This potentially leaves more Russian grain to come onto the world export market.

Despite a record large export program, Ukraine said that grain stocks there at the beginning of February were 28% higher than a year ago at just short of 20 MMT.

The Ukraine Ag Ministry said this week that there's no reason why the country couldn't match last year's record grain output again in 2014. With winter grains plantings down 500,000 hectares due to wet conditions in the autumn, that would almost certainly include another rise in corn area. Corn production in Ukraine has already trebled in the last five years on a combination of increased plantings but also the more widespread utilisation of improved hybrid varieties.