EU Grains Back In The Red, Conflicting Messages Out Of Russia

05/06/14 -- EU grains markets reverted to type and finished mostly back in the red, despite one private analyst slashing their forecast for Russian wheat production this year due to heat and dryness.

The day ended with Jul 14 London wheat down GBP0.80/tonne at GBP146.70/tonne, and with new crop Nov 14 London wheat GBP0.45/tonne lower at GBP142.55/tonne. Nov 14 Paris wheat ended EUR0.25/tonne lower at EUR191.00/tonne, Jun 14 Paris corn slipped EUR0.25/tonne to EUR168.00/tonne, whilst Aug 14 Paris rapeseed also fell EUR0.25/tonne to EUR345.75/tonne.

Private firm MDA CropCast slashed 6.1 MMT off its forecast for Russia's 2014 wheat crop, cutting production there to only 45.2 MMT versus 52.1 MMT last year. They also trimmed their Russian barley production estimate by 2 MMT from last week to 14.7 MMT (versus 15.6 MMT a year ago). In addition they cut their outlook on Russia's sunflower crop by 490 TMT to 9.24 MMT, down from 10.13 MMT in 2013.

I can only assume that it's mostly spring wheat where they see these losses occurring. That's still being planted at 96.9% done on 12.7 million hectares, according to the Ag Ministry. Agritel said that much of Russia has only had one third of normal rainfall in the past 2 months. Most analysts seem to believe that the very heavy rainfall that Russian winter wheat areas got last autumn has minimised the effects of the recent dryness.

Indeed, Russian analysts IKAR today raised their forecast for the country's 2014 grain crop to 96 MMT from 95 MMT previously and 92.4 MMT in 2013. They said that wheat production would account for 54.5 MMT versus 52 MMT a year ago.

IKAR forecast Russia's 2014/14 grain exports at 28 MMT, which is 2 MMT more than they expect shipments to be in 2013/14. Wheat exports will total 19.4 MMT, up 1 MMT compared to 2013/14, they said.

If IKAR are correct then that would keep the pressure on for EU wheat prices to ultimately have to work lower to compete on the export arena. The Russian winter wheat harvest is expected to begin around Jun 20.

Ukraine meanwhile said that it had exported a record 31.4 MMT of grains so far this season, including 19.74 MMT of corn, 9 MMT of wheat and 2.3 MMT of barley. There's a further 630 TMT of grains in portside stores waiting to load, along with 68 TMT already on board vessels waiting to leave.

Crops in Ukraine are generally said to be looking in very good shape.

Egypts GASC, temporarily at least, raised the maximum moisture requirement in it's wheat tenders from 13% to 13.5% - a move seen as giving French wheat a better chance of achieving success the next time they buy. They are expected to maybe issue one last tender for the 2013/14 season soon.

Jordan bought 100 TMT each of optional origin hard milling wheat and barley in a couple of tenders. Pakistan bought 100 TMT of Black Sea origin wheat. Serbian material was the lowest offer in a Turkish tender for old crop corn, undercutting Ukraine origin by almost $10/tonne on a C&F basis.

Brussels issued 285 TMT worth of soft wheat export licences, taking the seasonal total so far to 26.7 MMT. They also authorised 306 TMT worth of corn imports, taking the 2013/14 total so far to 13.6 MMT. That's the third time in the past four weeks that licences to import corn have been higher than those to export wheat.

EU crops are generally looking great, with a 6-year high (and second highest ever) wheat crop waiting in the wings, and a potentially record rapeseed harvest only weeks away.

The ECB cut interest rates in the eurozone from 0.25% to 0.15%, and also cut the deposit rate below zero, -0.1%, in the hope that this would encourage banks to lend rather than put money on deposit with the Central Bank. An interesting experiment, and one that potentially opens the door for further sterling appreciation against the euro in the months ahead. The BOE meanwhile left UK interest rates on hold at 0.5% - which is now more than three times higher than those on the continent!

The pound closed the day around 1.23 against the euro and 1.68 versus the US dollar. New crop UK wheat is currently said to priced around GBP6-7/tonne too dear relative to French origin to pick up any export interest.