EU Grains Push Higher, Are Funds Falling Back In Love With The Ag Sector?

28/10/14 -- EU grains traded higher again Tuesday, extending the recent rally. There does seem to be an element of fund/spec money coming back into the grains sector, which could be a supportive factor going forward.

Currently Nov 14 London wheat ended up GBP0.95/tonne to GBP121.40/tonne, Nov 14 Paris wheat finished EUR4.50/tonne firmer at EUR169.50/tonne, Nov 14 Paris corn was unchanged at EUR143.75/tonne, whilst Nov 14 Paris rapeseed has zoomed EUR5.50/tonne higher to EUR328.00/tonne.

What might be tempting the funds back? Falling energy and equity markets are a couple of reasons being cited. The FTSE 100 is currently down 7% since early September, and NYMEX crude is down more than 16% in the same period. Meanwhile Chicago wheat, corn and soybeans have all risen by 10-13% during this time.

There's a whiff in the air that the grain markets are ripe for a quick buck still to be made. Even if we have seen the harvest lows, prices still aren't that much up from the lowest levels seen in more than 4 years in wheat, corn and soybeans. Some are clearly seeing that as opportunity.

Rumblings that all is not well with the crops in the FSU, suggest that there could be some decent upside potential ahead, particularly if they get a hard winter.

There's still 12.5% of Kazakhstan's 2014 grain harvest to bring in yet, which will be no easy feat with temperatures there now down to -10C.

Russia's winter grain plantings are all in, and in a timely manner too, but various reports suggest that lack of rainfall prior to the recent freeze leaves crops there poorly established and not in a good condition to make it comfortably through the winter.

The Russian rouble meanwhile has fallen to all time lows against the US dollar and euro today. Not only does that mean that spring seeds and fertiliser/agrochemical costs will be sharply higher in 2015, it is also encouraging growers to hang onto what grain they haven't sold from the 2014 harvest.

Ukraine also has currency troubles of it's own. As of Oct 24 winter barley plantings had only been completed on 838.4k hectares, 18% down on a year ago and a 5-year low. Weather conditions there are similar to those in Russia, with moisture deficits and cold temperatures reducing crop conditions heading into winter dormancy.

The Ukraine Ministry said today that the country's 2014 grain harvest is 89% complete.

The Russian Ministry said that the country had exported over 14 MMT of grains so far this season, a rise of a third on a year ago. Wheat accounts for the vast majority of that activity at 11.62 MMT, or 83%.

Elsewhere, the USDA's FAS in Morocco pegged the 2014/15 cereal crop there at 6.8 MMT, a 30% fall on a year ago. They also said that the prospects for 2015/16 had started under "unfavourable conditions" with a significant rainfall shortage and low water levels in the reservoirs.

At home, there were 27 re-tenders against the in delivery Nov 14 London wheat contract, taking the total number of tenders to 1070 out of a total open interest of 1217 lots.