London Wheat Rises On Correction From Recent Lows

03/02/14 -- London wheat traded firmer to start the week, getting a shot in the arm in afternoon trade when US markets opened and moved higher in what looks like a "new month, new money" move. Let's see how long the optimism hangs around for before we start shouting that the wheat market has bottomed.

Mar 14 London wheat ended GBP1.30/tonne higher at GBP150.80/tonne, and new crop Nov 14 gained GBP2.25/tonne to GBP142.25/tonne. Mar 14 Paris wheat was firmer for much of the afternoon, but ended up closing EUR0.50/tonne lower at EUR192.00/tonne, Mar 14 Paris corn slipped EUR0.50/tonne to EUR173.00/tonne, whilst May 14 Paris rapeseed managed a EUR0.25/tonne gain to EUR364.50/tonne.

Wheat has had a pretty tough time of it in January, so I guess that some sort of correction was due. London wheat finished last month 8.7% lower than it began it, with Chicago wheat down by 8.2%, and Paris wheat falling 7.5% during the course of January. London wheat finished at the lowest levels seen on a front month since late 2011 on Friday, whilst Chicago wheat posted a lowest close since July 2010 on Thursday night.

London wheat traded higher from the off, supported by a weaker sterling after disappointing manufacturing data saw the pound fall below 1.21 against the euro and around a cent lower against the dollar versus Friday's close. UK manufacturing PMI fell from 57.2 in December to 56.7 in January, contrary to expectations for a small rise to 57.3, according to data released today.

Cheap global wheat prices are flushing out some buying interest. Bangladesh today said that they would step up their wheat buying, tendering for 100 TMT soon. They've already bought 300 TMT on the international tender market this marketing year, plus a further 200 TMT in an inter-governmental deal with Ukraine.

Indian origin wheat will likely be the favourite to win the Bangladeshi order. They are still actively selling wheat, and picked up bids around $270-275/tonne FOB in a couple of tenders over the weekend, which is still above the government's stated minimum of $260/tonne, although the gap is narrowing.

The Indian 2014 wheat harvest is now only 6-8 weeks away, and a record 100 MMT monster crop could be on the cards. Next door, Pakistan said that they'd planted 8.82 million hectares of wheat, slightly shy of the government's target, but up 3.5% on last year. They are aiming for a 25 MMT crop versus 24 MMT a year ago.

Russia said that they'd exported 942 TMT of grains in the Jan 1-26 period, including 542 TMT of wheat and 351 TMT of corn. Marketing year to date exports are 28.5% up on year ago levels at 17.327 MMT, of which over 13 MMT is wheat and more than 2 MMT corn.

The USDA's FAS in Moscow increased their forecast for Russian grain exports by 1.6 MMT to 20.6 MMT, including 16 MMT of wheat (up 1 MMT) and 2.5 MMT of corn (up 0.5 MMT).

Ukraine said that they'd shipped 21.5 MMT of grains abroad in the Jul/Jan period, an increase of 34.5% on last year. That includes over 12 MMT of corn, just under 7 MMT of wheat and a little more than 2 MMT of barley. In addition, they've exported 2 MMT of rapeseed and 0.8 MMT of soybeans.

London wheat may have got off on a firmer footing to start the week and new month, it remains to be seen if the wheat market can gain any traction from here. Winter wheat in the FSU is now largely well protected by snow, and US wheat on the Plains is in for up to 8 inches of snow later in the week. Parts of the EU remain too wet, although it's currently uncertain exactly how much damage has been done to winter crops. We are going to need a bit more of a weather scare than that to see this market put on some significant gains.

The other options/hopes for the bulls are a demand-led rally and/or something to spark a round of serious fund short-covering in wheat (their net short in futures and options in Chicago wheat was around a meaty 90k contracts as of last Tuesday night - although it topped 100k in December). The bears will be riding the long-term trend line lower. Both London and Paris wheat have been in a down trend for more than a year now, and in the case of Chicago wheat the rot set in six months before that.

In other news, French analysts Strategie Grains estimated the EU-28 OSR crop at 21.4 MMT versus their previous estimate of 21.3 MMT and up 2.4% from the 2013 crop of 20.9 MMT.