Nogger's Blog

05/09/14 -- EU grains closed mostly a little higher to end the week, although wheat and corn still finished as losers overall versus last Friday.

The day ended with Nov 14 London wheat up GBP0.30//tonne to GBP119.00/tonne, Nov 14 Paris wheat closed EUR1.25/tonne firmer at EUR172.00/tonne, Nov 14 Paris corn was up EUR0.50/tonne at EUR149.00/tonne, whilst Nov 14 Paris rapeseed was EUR2.00/tonne higher at EUR325.25/tonne.

For the week that puts London wheat GBP2.80/tonne lower, with Paris wheat falling a net EUR2.25/tonne and corn down EUR2.75/tonne. Paris rapeseed managed a EUR1.50/tonne gain versus last Friday.

Initial support today appeared to stem from reports that Russia might consider an export ban if grain shipments in 2014/15 reached 26.9 MMT, with many private analysts estimates being already well over this figure. Reports later in the day played down these rumours, with the Russian Deputy PM saying that the issue is not on the agenda. The Ag Ministry said that they did not send the alleged letter, but not that one didn't exist - Reuters say that they have seen a copy of it.

The uproar caused in the global grain markets by the 2010 Russian export ban is still pretty fresh in everybody's minds. The Russians have subsequently insisted that in future they will let the market regulate itself, and I believe that on this occasion that is exactly what they will do. It seems bizarre to be even discussing the possibility of a Russian export ban in a year where grain production is expected to be close to a post-Soviet era record. Demand however is also strong this year, especially for high protein milling wheat given the problems in France and elsewhere.

Brussels said that they'd issued 852 TMT worth of soft wheat export licences this past week, taking the season to date total to 4.6 MMT. That's slightly ahead of the 4.5 MMT granted this time a year ago. That's interesting as the USDA currently has the EU down to export more than 20% less wheat in 2014/15 than it did last season.

The majority of what has been released for export is likely to be milling wheat, which continues to point to a further widening of it's premium over feed wheat in the second half of the season. This doesn't necessarily mean though that feed wheat price have bottomed. The arrival of a potentially record large global 2014 corn crop is a major obstacle to overcome for that. Ukraine new crop corn offers are today said to be down to $174/tonne FOB the Black Sea, a $9/tonne drop on the week, and the sterling equivalent of around GBP106.50/tonne.

Back to Brussels, they've also issued 2 MMT of EU corn import licences so far this year, more than double the volume granted this time a year ago (815 TMT). Barley export licences issued currently stand at 1.6 MMT, which is down by more than a third on a year ago.

In addition they also confirmed that the 18,614 MT balance of a special duty-free quota granted to Ukraine to export up to 950 TMT of wheat to the EU have now been fully subscribed. Ukraine's wheat crop is also said to be short on quality this year. They've exported a strong 5.37 MMT of grains so far this season, including a little under 3 MMT of wheat and nearly 2 MMT of barley.

France said that it's wheat harvest was 99% complete as of Monday, the same figure as a week ago. Corn crop conditions were unchanged at 88% good to very good versus only 55% this time last year.

Dollar strength and/or sterling and euro weakness has also been a feature this week. The pound is down by almost 3 cents, or 1.6%, against the dollar versus last Friday, with the euro falling by around one and three quarter cents, or 1.3%. Sterling has now lost almost 5% of its value against the dollar since its early July peak of over 1.7150.

In theory this should at least provide EU milling wheat with a competitive edge against US origin material on the export front.

Paris wheat is down 20% versus Chicago wheat's 27% decline from their 2014 peaks set in late April/early May. Paris corn is also down 20% during this time-frame versus a 33% decline in its Chicago equivalent.

London feed wheat incidentally has lost 30% of its value in that period.

The developing theme here seems to be lots of cheap corn and barley competing with a large EU feed wheat crop in the animal feed market, but with an evolving shortage of milling wheat later in the season.