Nogger's Blog

03/06/14 -- EU grains closed mixed, but mostly lower once more, as Nov 14 London wheat set a lifetime contract low of GBP141.75/tonne in early trade.

The day ended with Jul 14 London wheat unchanged at GBP146.50/tonne, and with new crop Nov 14 GBP0.55/tonne lower at GBP142.05/tonne. Nov 14 Paris wheat closed EUR0.75/tonne lower at EUR189.75/tonne, Jun 14 Paris corn was unchanged at EUR171.75/tonne and Aug 14 Paris rapeseed finished EUR3.00/tonne easier at EUR345.00/tonne - the lowest finish for a front month since July 2010.

This wheat market simply cannot buy a break at the moment. Almost everywhere you look the news is bearish - and maybe that's about the only bullish factor we have to go on in this market at the moment.

Rabobank forecast CBOT wheat falling to $6.00/bu by the end of the year, and to $5.60/bu in Q1 of 2015. Based on where the respective Dec 14 and Mar 15 CBOT futures currently trade, that's a drop of 7.7% in Q4 of this year and a fall of 16.4% in Q1 of next year.

If London wheat were to fall by a similar percentage, and I know that is a very big if, then we'd see prices down more than GBP10/tonne from where they are now by the end of 2014, and a drop of a further GBP14/tonne by the end of March 2015 - and you thought that things were bad now!

Agritel said that in the northern plains of Kazakhstan, which represent around 90% of the country's grain production area, around 20mm of beneficial rain has fallen in the last two weeks.

Russia said that it had planted 93% of both the expected 2014 spring wheat and barley area, along with a 97% of it's intended corn area.

Ukraine said that its farmers had planted 97% of the expected 2014 corn area too, along with 98% of the anticipated sunflower and soybean area.

Rabobank said that they forecast Ukraine's corn yields down 10% this year due to lack of inputs. Other analysts note that whilst growers there may have more or less matched last year's planted area, some of it may have been sown with inferior quality local seed, rather than a better quality imported hybrid varieties. Thus yield expectations should be lower.

The large hike in Ukraine gas prices will also make the cost of drying corn this year substantially higher. Nevertheless production in 2014 looks likely to be the second highest on record, and exports are expected to hold up at levels similar to the record ones of 2013/14.

Whilst the outlook for 2014 EU grain prices certainly remains lower, ultimately this year's price action could actually prove to be bullish in the longer term.

Could cash-strapped and war-torn Ukraine farmers be forced to also plant inferior winter wheat seed come the autumn? Throw in a bit of an El Nino wobble re Australia later in the year (Rabobank do see some upside on the back of this), EU plantings down if prices here do fall further, plus an added unexpected weather/war scare somewhere else that we don't know about yet, and there could be some decent upside 12 months down the line. (Note that Nov 15 London wheat now commands a near GBP7.00/tonne premium to Nov 14).

Before that though, there may be some more tears before bedtime. History suggests that bumper Black Sea region grain production is usually bearish for global prices, particularly in the first quarter or two of the new marketing year.

The respective local currency devaluations of the Ukraine hryvnia and Russian rouble, the desperate need for cash, the lack of on farm storage and the ongoing violence between the two all point to an "I'll take whatever I can get" mentality at harvest time. The instability in Ukraine is only adding to the feeling that "anything could happen yet" - meaning that farmers in the region will be even keener than normal to get their crops sold straight off the combine and turn them into cash whilst they can.