It Was Always Going To Be Unpredictable - Apparent Act of Terrorism Sends EU Grains Higher

17/07/14 -- EU grains markets reverted to type for much of the day, trading mostly lower again. Aug 14 Paris rapeseed had another particularly difficult day and slumped to the lowest levels for a front month in what is now more than 4 years.

However, showing how vulnerable these markets are to a sudden and without warning upside correction, breaking news very late in the day that a Malaysian passenger plane had been "shot down" on the Ukraine/Russian border suddenly sparked a wave of short-covering sending markets mostly higher.

The day finished with Nov 14 London wheat up GBP2.75/tonne at GBP132.00/tonne, Nov 14 Paris wheat ended EUR4.00/tonne higher at EUR183.00/tonne, Aug 14 Paris corn was up EUR1.00/tonne at EUR169.00/tonne, whilst Aug 14 Paris rapeseed still even couldn't manage a rally, falling EUR3.00/tonne to EUR322.75/tonne.

As far as fundamental news goes...

Strategie Grains raised their forecast for the EU-28 wheat, barley and corn crops versus last month, although they did warn that recent rains (and more in the forecast) might be doing some damage. For now they estimated that 67% of the EU wheat crop would make milling standard, that's down 4 points on a year ago and puts the EU-28 milling wheat crop at 94 MMT versus 97 MMT in 2013. However, "quality and even yields could deteriorate significantly" if heavy rain on the continent persists for much longer, they said. Very early French wheat cuts do suggest a reduced proportion of milling wheat there this year.

That does of course mean more feed wheat around, posing further competition for barley, the price of which is already well below GBP110/tonne ex farm in most parts of the UK off the combine. There's also then the glut of cheap European and FSU corn to contend with too.

As far as the numbers go, the French analysts pegged the EU-28 soft wheat crop at 140.5 MMT, a 1 MMT rise on their June forecast and a 4% hike on last year's production. They raised their outlook on barley by 700 TMT to 56.2 MMT, which is still 6% down on last year, and increased their forecast for corn production in the Union by 500 TMT to 66.4 MMT, which is 3% more than a year ago.

Conversely there appear to be no such problems in Russia, where local analysts ProZerno said yesterday that the early harvest results are showing a larger proportion of this year's wheat crop is of milling standard than in 2013. Russian growers have harvested 22.2 MMT of gains so far, with average yields up 15.7% at 3.53 MT/ha, say the Ag Ministry. Wheat accounts for 18.5 MMT of that total off 20.4% of the planned area, with yields up 13.5% at 3.62 MT/ha. Barley adds a further 2.6 MMT off 8.3% of plan with yields up 24.5% at 3.40 MT/ha.

In Ukraine meanwhile, the early grain harvest (excluding corn) has advanced to 44% complete on 4.31 million hectares, producing a crop of 13.09 MMT as of Jul 15. This total doesn't now include Crimea. Average yields in Ukraine are said to be up 5.2% versus 2013 at 3.04 MT/ha. Wheat accounts for 8.4 MMT of the total and barley a further 4.48 MMT. In addition they've now cut 476k hectares of winter OSR, producing 958 TMT to date.

Kazakhstan said that they will produce an 18 MMT grain crop this year (in bunker weight), versus 18 MMT in clean weight last year.

At home, the HGCA said that early UK barley yields "are above average whilst the first winter oilseed rape yields are close to average." They did however note that this information is based on a very small sample size, even though the limited progress made so far is in line with typical harvest years. UK growers will be anxiously monitoring the weather in the days ahead then, with heavy and widespread thunderstorms forecast for the weekend.

Israel bought 108 TMT of corn and 50 TMT of feed wheat in a tender, both were said to have been of Black Sea origin.

The pound pared recent strong gains against the euro and US dollar, that pushed the UK currency to a 2 1/2 year high against the former and a 6 year high versus the latter this week. Nevertheless, the outlook for the BOE to be the first major central bank to break ranks and raise interest rates before too long continues to underpin sterling.

US interest rates meanwhile are stuck at zero, whilst European Central Bank president Mario Draghi has recently said that Eurozone interest rates will stay at 0.15% for an "extended period" of time.

A prolonged period of sterling strength will of course do nothing for UK export hopes/needs in 2014/15, whilst serving to only make imports of corn from Europe and the FSU even cheaper.

That leaves UK growers caught between a rock and a hard place, with cereal prices now below the cost of production and with them having what one domestic trader suggested was "the lowest percentage (forward) sold in living memory".

Back to "outside influences"....

The late and developing breaking news concerning the downed Malaysian airplane might govern price movements in the next few days, or even for longer. How long that influence will last is anybody's guess, I personally suspect not for that long. It's a reminder that outside news, often totally unconnected with the grains markets, can ultimately have an influence on where prices go, at least in the short-term. Crimea, Chernobyl, Fukushima etc...