EU Wheat Rout Continues

12/09/14 -- EU grains closed mixed, with wheat lower and corn and rapeseed a little higher. It is interesting to note that, now London and Paris wheat have fallen below their respective long term support levels of GBP120/tonne and EUR170/tonne, they've quickly slumped this week to approach the GBP110/tonne and EUR160/tonne levels. Paris wheat traded as low as EUR160.50/tonne today in fact.

The day ended with Nov 14 London wheat down GBP1.55/tonne at GBP112.45/tonne, and Nov 14 Paris wheat ultimately ended EUR1.25/tonne lower to EUR162.50/tonne. Nov 14 Paris corn was up EUR1.50/tonne to EUR140.25/tonne and Nov 14 Paris rapeseed was EUR0.25/tonne higher at EUR321.50/tonne.

At the end of a dismal week for most of the sector, that puts the London market down GBP6.55/tonne, or 5.5%, versus last Friday. French wheat meanwhile has fallen EUR9.25/tonne, or 5.4%, during the same period. Corn is down EUR8.75/tonne, or 5.9%, and rapeseed has fallen EUR3.75/tonne, or a more modest 1.2%.

The French wheat contract is something of an enigma, seeing as it's possible to deliver product which is little better than feed wheat against it this season (albeit at an allowance), and feed wheat is something that France has in abundance this year.

In fact, let's use the Farm Ministry's production estimates from earlier in the week, along with FranceAgriMer's statement that only 59% of this year's crop is suitable for breadmaking versus 95% a year ago. The two combined tell us that the volume of this year's crop that isn't suitable for breadmaking is up from less than 2 MMT in 2013 to almost 15.4 MMT this year - a figure above that of the UK's entire wheat crop of the past two seasons and a more than 8-fold increase.

This may go some way towards explaining the scale of the problem that France have on their hands this year, and why they are so apparently willing to undercut UK feed wheat substantially on the international export markets.

A different headache that could also be brewing in the wings is that the French port of Rouen is still the sole delivery point against the Paris future, at least it is until September of next year. Open interest in the front end Nov 14 contract is currently in excess of 7.8 MMT, which is far higher than the port's nominated futures storage capacity. It is theoretically possible therefore that some wishing to make delivery against the contract simply find it impossible to do so as the stores could already be full.

What would happen then? A contract that it could be impossible to deliver against, with a quality specification set by the store, one which potentially changes every year, and we don't know what next year's spec will be yet until after the harvest. That doesn't sound like much of a hedging tool does it?

Meanwhile Germany's BayWa Group said that they had unusually sold around 100 TMT of German milling wheat to France in recent weeks. They are also known to have bought various other origins, including British, to "blend" in with their own sub-standard crop this year.

That immediately gives them a problem in being sellers to Algeria, who's state buyer (OAIC) has already stated that the will not accept wheat from multiple origins in their tenders. They were said to have bought 400 TMT of optional origin milling wheat at around $254.50/tonne cost & freight in tenders this week.

Sharply higher French wheat imports, and reduced demand from non-EU destinations, are likely to push their 2014/15 stocks at the end of the season to a 12-year high of 3.9 MMT, FranceAgriMer said this week. Even that estimate is already starting to look low.

The French analysts today said the the country's 2014 corn harvest had yet to begin, as of Monday. They trimmed the proportion of the crop rated good to very good by one percentage point to 85%, although that's still historically high and far better than only 56% this time a year ago.

At home, the HGCA said that the UK wheat harvest is now 95% done, pegging the average yield at 8.4-8.6 MT/ha. That potentially takes production this year close to the 17 MMT mark. The winter barley harvest is all wrapped up, and there's still 20% of the spring barley crop left to be cut. Spring OSR is now 40% harvested, they added.

Russia's huge grain harvest has now reached the 84.3 MMT mark, off 67.6% of the planned area, including 51.7 MMT of wheat (off 67.5% of plan). The Kazakh harvest stands at just under 6 MMT off 37% of plan, with Ukraine at almost 37 MMT off 68% of the combinable area.