London Wheat Closes Below GBP120 For First Time In More Than 4 Years
03/09/14 -- EU grains closed mostly lower as news of a ceasefire agreement between Ukraine and Russia broke.
The day ended with Nov 14 London wheat down GBP1.50/tonne to GBP119.50/tonne, Nov 14 Paris wheat was EUR2.50/tonne lower at EUR171.00/tonne, Nov 14 Paris corn was down EUR1.25/tonne EUR150.00/tonne and Nov 14 Paris rapeseed was EUR3.50/tonne easier at EUR323.00/tonne. This was the first sub-GBP120/tonne close for a front month on London wheat since July 2010.
The initial statement put out regarding the ceasefire in Ukraine was subsequently re-worded, with Russia appearing to want to maintain it's insistence that it couldn't agree to a ceasefire unless it was part of the conflict, and that it isn't.
Ukraine's President Poroshenko then said that steps towards a "ceasefire process" were what was agreed. Reuters then reported that Putin's spokesman said that the two leaders had agreed on steps towards peace but not a ceasefire in the conflict. The BBC later said that Putin is hoping for a peace agreement to be reached by Friday.
This may simply all be an attempt to stop Russia losing too much face over it's constant denial that it had any involvement in backing the rebels, only time will tell. At the very least it is at least the first positive move in months, and one which today saw some of the "risk premium" that's been added into the wheat market taken away again, even though exports from both countries have been continuing at a frenetic pace.
Some might argue that an easing of tensions that a ceasefire would bring, would also calm shippers nerves and remove some of the urgency to "get it out whilst we can" and that the pace of exports out of the region might now start to slow down a little.
The bear camp would contend that Ukraine's export pace might yet increase further once the 2014 corn harvest gets underway in earnest.
The Ukraine Ministry today said that the country had harvested 35.7 MMT of grains, off 66% of the planned area. Corn accounts for only 73 TMT of that total so far. There are whispers that yields are down noticeably this year among this early harvested material, although it's too early to say that this will be replicated across the entire crop it does seem to be a possibility.
Regardless of that, much of this new crop corn will be put onto the market the minute it is harvested, potentially putting further downwards pressure on that particular market. Don't forget that the EU too is expecting a large corn harvest of it's own this year, and it also has significantly more feed wheat than normal to find a home for.
Ukraine new crop corn for Nov shipment was reported to have traded at $177/tonne FOB yesterday, the equivalent of little more than GBP107/tonne before shipping costs are added.
Other news out of Ukraine says that the winter oilseed rape crop for next year's harvest is now 60% planted on 514k ha. Much of the country could do with rain to help that germinate and get off to a good start before the winter arrives, although there's precious little of that in the forecast for the next 2 weeks. That at least should speed up the corn harvest and cut out any drying costs that the Ukraine farmer can ill afford to pay at the moment.
In other news, Rabobank noted that the current price ratio in Chicago of wheat being 1.5 times the value of corn is an upside price limiting factor for wheat.
They also suggested that the USDA's next WASDE report, due for release on Sep 11, could be "pivotal" for corn prices as it will be the first to include actual weights from field samples. Despite currently predicting a record 2014 corn yield of 167.4 bu/acre, the USDA are actually still significantly below the 170-175 bu/acre camp where virtually the rest of the trade currently reside.
Should they decide to "bite the bullet" and come up with a yield estimate in the rest of the trade ballpark than that would significantly increase their production estimate from the current figure of a fraction over 14 billion bushels. Note that FCStone yesterday forecast production close to 14.6 billion bushels (and Lanworth Inc today agreed with them), more than 4% above the USDA's August estimate. A figure of that magnitude next Thursday would provide the market with something of a "supply shock" that could send prices sharply lower.
Late in the day, news that Egypt's GASC had bought one cargo each of French and Romanian wheat - the former being it's first purchase of French wheat for almost 8 months was interesting. Russian wheat was apparently priced out for the first time on months.
