EU Grains Fall As Harvest Draws Near And Crop Estimates Rise

15/05/14 -- EU wheat markets finished the day mostly lower, after a relatively feeble attempt to rally in afternoon trade proved to be short-lived. Generally very good crop conditions across Europe continue to weigh on the market. The forward nature of the crops also means that we will probably be looking at an early harvest this year, they could be cutting barley in France and Germany in just 4-5 weeks time.

The day ended with May 14 London wheat closing down GBP0.65/tonne at GBP152.75/tonne, with new crop Nov 14 London wheat GBP0.75/tonne weaker at GBP149.25/tonne and Nov 14 Paris wheat EUR2.00/tonne lower at EUR199.00/tonne. Jun 14 Paris corn was down EUR2.50/tonne at EUR178.00/tonne, whilst Aug 14 Paris rapeseed fell EUR2.00/tonne to EUR359.25/tonne.

Strategie Grains raised their forecast for this year's EU soft wheat crop by 200 TMT to 137.4 MMT, a 2% rise on a year ago. They increased their EU corn production estimate by 700 TMT from last month to 65.9 MMT, which also represents a 2% rise on output in 2013. Their barley production forecast was left unchanged at 55.9 MMT, a 6% decline on last year.

They said that recent rain in western and central Europe was beneficial both for winter and spring crops, although parts of Spain and northeast France remain dry. Excess wetness in Italy and Greece could give rise to quality issues for soft and durum wheat, they said.

On the export front they increased again their forecast for EU-28 soft wheat to a record 28.1 MMT this season, up by 1.3 MMT from their previous estimate.

Concerns earlier in the year that dryness would cut German crop production this year have been allayed by recent rains. Output is now seen very similar to 12 months ago.

The German Farm Co-op DRV estimated the 2014 grain crop there at 47.6 MMT, up 300 TMT from their previous estimate almost identical to last year's 47.7 MMT. Cereal and OSR crops are a good two weeks ahead of schedule, they said.

They forecast Germany’s 2014 all wheat crop at 24.9 MMT versus a previous estimate of 24.7 MMT and again virtually unchanged on 25.0 MMT twelve months ago. They see the German barley crop at 10.4 MMT, unchanged from previously and versus 10.3 MMT last year. Corn production will rise to 5.1 MMT versus 4.4 MMT in 2013. Rapeseed output was seen at 5.6 MMT versus a previous estimate of 5.5 MMT and 5.8 MMT in 2013.

China's CNGOIC forecast a 2014 wheat crop of 122.6 MMT, a small 0.7% rise on last year. Imports in 2014/15 will fall to 3 MMT versus 7 MMT this season, they estimate. In addition they pegged the Chinese corn crop at 222.1 MMT this year, a 2% increase versus 2013, with imports falling from 5.5 MMT this season to 3.5 MMT in 2014/15.

The Chinese government only sold 77,616 MT, or 11.5%, of the 672,871 MT of wheat that they put up for auction this week. Sales have been heavily under-subscribed in recent weeks. It's not clear if that is due to price, or the quality/age of the wheat on offer, or both.

The UK market looks like it may still have some downside in the run-up to harvest time, especially given that we are expected to return to the position of being a net exporter of wheat - and given that the current strength in the pound will not aid those export aims at all.

"UK feed wheat futures will have to follow Paris corn in order to remain competitive. Looking back to the 2011 crop, when the UK last had a feed wheat surplus that had to be competitive on export markets, the LIFFE Nov 11 wheat contract was consistently around GBOP10-15/tonne cheaper than the MATIF Nov 11 corn contract," noted the HGCA. Tonight that differential is currently the equivalent of only around GBP1.25/tonne.