Nogger's Blog

21/03/14 -- EU grains closed the day mostly lower, in further light consolidation following the recent run up to multi-month highs.

The day ended with Mar 14 London wheat going off the board unchanged at GBP167.35/tonne, and with new crop Nov 14 London wheat closing GBP0.50/tonne lower at GBP160.00/tonne. May 14 Paris wheat closed EUR0.50/tonne weaker at EUR210.75/tonne, Jun 14 Paris corn slipped EUR0.25/tonne to EUR185.50/tonne, whilst May 14 Paris rapeseed fell EUR1.50/tonne to close at EUR401.25/tonne.

For the week, Mar 14 London wheat was GBP0.55/tonne firmer, with Nov 14 up GBP0.65/tonne. May 14 Paris wheat fell EUR0.75/tonne, Jun 14 Paris corn was down EUR1.25/tonne and May 14 Paris rapeseed was down a similar amount.

On Wednesday this week we saw London wheat close at GBP168.35/tonne, the highest finish for a front month since last July, whilst new crop Nov 14 touched GBP163.80/tonne - the highest for the contract since last June. Chicago wheat meanwhile put in the highest close for a front month in almost a year on Wednesday, for a near 30% rise from the January lows.

This week's London wheat high "only" represents a 12.6% rise from the January lows. Does that mean that London wheat is undervalued? Some of course would like to think so, although it's worth noting that Paris wheat has only risen by a similar percentage to the London market during this time, which may indicates that spec money has pushed Chicago wheat considerably higher than is justified.

Rabobank seem to think so, they estimated  Chicago wheat prices in Q4 of this year at only $5.60/bushel, which is around 23% lower than where forward levels currently reside.

"Favourable crop conditions throughout the Black Sea region and the European Union continue to support our view of modest gains to the stocks of major wheat exporters for the 2014-15 season," they said.

Others disagree, saying that drought conditions are currently in force pretty much anywhere from Germany eastwards to the Black Sea.

Certainly the unseasonably mild and dry conditions have allowed Ukraine growers to make a good start to spring plantings, despite the political problems in the region, with the Ministry there reporting early spring sowings already completed on almost twice the area of last year, and 32% of the target.

UkrAgroConsult today forecast the 2014 Ukraine grain harvest at 53 MMT, only a relatively modest drop on the 57-58 MMT that they say was achieved last year (although they noted that the official Ministry estimate for the 2013 harvest was 63 MMT). They said that this year's wheat harvest will amount to 19.6 MMT, with corn production at 23 MMT and barley output at 7.8 MMT.

They said that Ukraine spring barley sowing is at the best rate in 6 years, and they expect the area seeded in 2014 to expand - partly due to the leftover area of planned winter grains that never made it into the ground in the autumn, but also as the crop pinches land from corn. It's cheaper to cultivate, and the fact that it's harvested earlier than corn means that it can be turned into cash quicker - an important advantage in these tight credit times, they added.

Brussels issued 536 TMT of soft wheat export licences this past week it was announced last night, taking the marketing year to date total to 21.9 MMT, 49% up on last year. They also approved 350 TMT worth of corn import licences.

FranceAgroMer reported that French winter wheat maturity is well advanced, with 43% of the crop displaying an ear of at least 1cm, up sharply from 19% a week ago and versus only 3% this time a year ago. They said that 37% of the winter barley crop has an ear of at least 1cm versus 12% last week and only 3% a year ago.

French growers have been very active planting spring barley this past week, with a stunning 67% of the crop sown in a week. Plantings now stand at 87% versus 62% a year ago.

As far as crop conditions go, FranceAgriMer rated 75% of the winter wheat crop as good/very good, unchanged on a week ago and up 8 points on a year ago. Winter barley is rated 71% good/very good, also unchanged from last week. Note that 2% of both crops flipped from "good" to "very good" this week.

A different French analyst, Cetiom, said that French rapeseed yield potential is "much better than last year" and that without the excess rain that we also saw here in the UK in the early part of the year the outlook would have been for "excellent" yields.

That puts France on track to regain pole position as Europe's largest rapeseed producer in 2014, a place that they lost to Germany last year, as growers there have also increased plantings by 6%, according to FranceAgriMer.