Nogger's Blog

13/03/14 -- EU grains closed mixed in choppy two-sided trade. Support came from the overnight Globex wheat market trading at $7/bushel for the first time for a front month since October. May 14 Paris wheat meanwhile hit EUR216/tonne - the best level for a front month since last May - before giving up all of the day's gains, and then some, by the close.

Today's overnight high in Chicago wheat represents a more than 20% jump on where the market closed immediately prior to the Russian invasion of Crimea just a couple of weeks ago.

The day ended with Mar 14 London wheat GBP0.20/tonne lower at GBP166.80/tonne, and with new crop Nov 14 London wheat closing GBP0.55/tonne firmer at GBP159.85/tonne. May 14 Paris wheat closed EUR2.00/tonne lower at EUR211.50/tonne, Jun 14 Paris corn was up EUR0.50/tonne to EUR186.25/tonne, whilst May 14 Paris rapeseed fell EUR2.50/tonne to close at EUR400.50/tonne, whilst other months were unchanged.

"Wheat rallies to 4-month high on Ukraine supply concerns," was typical of many of the headlines around this morning, but has the market gone up too far, too soon, and without sufficient fundamental reason?

It looks that way as far as the USDA are concerned. In a special report into current conditions in one of the world's leading wheat and corn exporting nations, they said that "prospects for Ukraine's winter crops and spring-sowing campaign remain generally favourable."

"The country’s wheat crop is already in the ground, and the availability of most inputs for spring sowing (including fuel, fertilizer, seed, and credit) has not been interrupted," they said. However "the use of certain imported inputs, specifically plant-protection chemicals and hybrid seed, could decrease from last year's level if Ukraine’s currency exchange rate does not improve within the next few months," they added.

Winter wheat was planted on 6.3 million hectares, down about 5 percent from last season, but winter losses have been below average, they noted. This has also been observed by other commentators, with some suggesting that one will offset the other, and that wheat production in 2014 may therefore be broadly similar that year ago levels.

"Spring planting is underway but will not be in full swing until later in March," they said. This begins with spring barley and some spring wheat (which only accounts for around 5% of the nation's total wheat output), plus oats and pulses, before progressing onto corn, sunflowers etc in late April.

"Access to the standard sources of agricultural credit for Ukrainian agricultural enterprises has not been impeded," they said. "Seed companies report that sales are proceeding as usual, and fertilizer and fuel are being delivered on time as well," they added.

"Escalating prices for imports, resulting from a decline in the exchange rate for the Ukrainian hryvna, could have an impact on the purchase of some key agricultural inputs, including hybrid seed and plant-protection chemicals," they conceded. Although they also noted that "seed companies report that the majority of seed for this year's spring crops has already been imported" and that "chemical companies have not yet reported a significant decrease in the importation of products to date."

The Crimea region typically produces around 5% of the nation's wheat crop (presumably most, if not all of which is already in the ground), and only minimal amounts of corn. That tonnage may simply be Russian wheat, not Ukraine wheat, by the time they get around to harvesting it. Yields may be lower due to reduced inputs, but does say a 20% drop on 5% of Ukraine's wheat crop justify a 20% rise in world prices? Based on last year's national production, we are talking about a figure of around 200-250 TMT being in jeopardy here.

"Poultry production is Crimea's largest industry, and the territory accounts for 6.5 percent of Ukraine's total poultry output, along with 3.1 percent of the beef, and 2.5 percent of the pork," the USDA added. The market doesn't yet seem to have paused to consider that the current crisis may have a more negative impact on domestic feed demand than it will on grain exports.

In other news, Russia's Stats Office reported that they'd shipped 422 TMT of corn in February, almost three times the volume exported in the same month in 2013. South Korea was the top home, but even the UK got a look in as a featured buyer, the first such sale in more than a year.

The German Farm Cooperatives Association, DRV, estimated the 2014 wheat crop at 24.64 MMT, a 1.8% fall on last year. "Following the continued mild weather with only one strong period of frost in most of Germany, grain plants have come through the winter period without significant damage," they said. They estimated that growth is 3-4 weeks ahead of normal.

They forecast the 2014 German rapeseed crop at 5.57 MMT, a 3.2% fall versus last year due to reduced yields and a lower acreage. Corn production will rise 6.7% to 4.79 MMT, winter barley output will increase 0.6% to 8.45 MMT and the spring barley crop will be 7.8% higher at 2.11 MMT, they said.

Brussels announced that they granted 571 TMT worth of soft wheat export licences this past week, versus 563 MMT a week previously and 932 TMT the week before that. Corn import licences were issued for 371 TMT. Cumulative soft wheat export licences now stand at 21.3 MMT versus 14.2 MMT a year ago. Corn import licences are at 9.3 MMT versus 8.2 MMT this time last year.