EU Grains Down Again On Bumper Crop Prospects, Strong Pound

12/06/14 -- EU grains closed mostly lower on the impending outlook for bumper, and imminent, production here in Europe this year.

The day ended with the relatively thinly Jul 14 London wheat contract down GBP0.05/tonne at GBP139.70/tonne and with new crop Nov 14 London wheat closing GBP1.80/tonne lower at GBP137.95/tonne. Nov 14 Paris wheat closed down EUR1.50/tonne at EUR187.75/tonne, Aug 14 Paris corn slid EUR1.00/tonne to EUR176.25/tonne and Aug 14 Paris rapeseed was EUR1.25/tonne firmer at EUR348.50/tonne.

The prospects for near record 2014 EU-28 wheat production, and an all-time high rapeseed crop, are becoming closer to a reality with ever passing day.

MDA CropCast today raised their forecast for the 2014/15 EU wheat crop by 2.9 MMT from last week, along with a 0.2 MMT rise in corn output, a 0.5 MMT increase for the barley crop and a 0.84 MMT hike in rapeseed production.

The German Farm Co-operative raised their estimate for the all wheat crop there from 24.94 MMT last month to 25.5 MMT this time round, a 1.9% increase on production last year. They also increased their view on this year's rapeseed crop by 300 TMT from last month to 5.9 MMT, a 2.2% rise on a year ago.

The USDA yesterday pegged the EU-28 wheat crop at 146.25 MMT this year, the second highest on record, 1% higher than a month ago and 2% up on last year. They now see the French crop at 38.5 MMT, which is probably about right. They could however still be too low on Germany (24.3 MMT) and the UK (15.15 MMT).

The USDA also upped their estimates for EU corn, barley and rapeseed production this year to 65.25 MMT (which is the highest since at least the 1990's), 55.88 MMT and 22.0 MMT (record) respectively.

Egypt's GASC bought two cargoes of Romanian and one of Russian wheat in a tender for late July shipment. They've increased the maximum moisture allowable on their wheat tenders to 13.5%, which in theory gives French wheat a better chance of competing. There's still a fairly stiff penalty for wheat over 13% moisture however, which may make traders reluctant to offer French material at least until the new crop is harvest is in.

The price paid by GASC for the Romanian wheat was said to be more than $40/tonne cheaper than the price that they paid for Ukraine wheat only a month ago. French material was offered, but at more than $10/tonne more than Romanian, and that was before more expensive freight was also factored in.

There was noticeably more interest in this Egyptian tender than recent ones, which may reflect the fact that the new crop harvest will be underway in many places by then. They are said to be harvesting winter barley in Ukraine now, and winter wheat is expected to be cut in the south of Russia around a week from now.

I'm just back from a trip to Cereals 2014, where the general mood amongst the farmers seemed to be pleased that the crops are looking so well, but not so pleased with the prices on offer.

How much lower can it (wheat) go? That was perhaps the question that most people were asking. Who knows, there could be another GBP10-20/tonne in it yet, seemed to be the general consensus among many of the traders I spoke to. One or two did make the point that just about all the bad news is surely in the marketplace now, so there could be some upside once the harvest is out of the way.

After two successively poor production years, it looks like the UK is back on track to have a good year production-wise. The fact that the last two have been poor though means that farmers have been very wary of committing too much tonnage too early this year. That leaves them caught between a rock and a hard place.

Growers are generally only 20-25% forward sold "at best" was the recurring opinion on offer. That potentially leaves much more grain to market at harvest time than normal this year, and that could be a big problem - especially with the pound sitting so strong.

Comments from the Bank of England governor Mark Carney, in his Mansion House speech tonight, that a UK interest rate rise could happen sooner than the market currently thinks look set to take sterling up to 1.25 against the euro and near 1.70 versus the US dollar in the morning. The last time the pound was up above those levels was Nov 2012 in the case of the former and October 2008 for the latter. Neither will of course help export prospects, but both will make wheat and corn imports cheaper.

The UK imported 157 TMT of corn in April, according to the latest available set of customs figures, that takes the 2013/14 import total so far to 2.08 MMT, up more than 50% on year ago levels.