Nogger's Blog

30/10/14 -- EU grains traded higher for much of the day, with the wheat market looking to extend its winning run to four out of four for the week so far. The board turned mostly red in afternoon trade though when US markets opened.

At the close Nov 14 London wheat was down GBP0.35/tonne to GBP121.75/tonne, Nov 14 Paris wheat was EUR1.50/tonne lower at EUR172.00/tonne, Nov 14 Paris corn was up EUR0.50/tonne to EUR145.50/tonne, whilst expiring tomorrow Nov 14 Paris rapeseed fell EUR5.25/tonne to EUR329.25/tonne.

The HGCA's contention that much of the current world record production forecasts are already "priced in" still appears to hold some water. The trade is already starting to look at crop production prospects for next year, and the don't have to look any further than Russia to find a potential problem.

IKAR yesterday usurped SovEcon's suggestion that Russia's 2015 wheat crop could fall below 50 MMT with comments that production could fall as low as 46.5 MMT, even if they did throw in the "rider" that this number was preliminary and pessimistic.

"Serious drought developed last summer continuing in September. The Southern District is Russia’s most important winter wheat area, accounting for 40-42% of the national harvest. It is made up of 4 districts Krasnodar, Stavropol, Rostov and Volgograd.

"The 6-month rainfall time series confirms very severe drought in the Southern District, where a 120 mm soil moisture deficit has accrued. Rainfall has increased recently, denting drought, though record heavy rain would be needed to fully restore ground moisture," said Martell Crop Projections.

"Very poor conditions in winter wheat are confirmed by remote sensing. An updated satellite image, valid September 20-October 15, reveals widespread vegetative stress," they add.

Spec money appears to think that it's spotted and opportunity to get involved in the grains sector again, being acutely aware that weather-related problems in Russia have sent global wheat prices soaring twice in the last 5 years. Is history set to repeat itself in 2015? It's too early to say with a large degree of confidence, but it certainly can't be ruled out.

It also needs to be considered that the acute weakness of the Russian rouble - down 21.7% against the US dollar since the beginning of July - will be a factor in grower's decisions whether or not to replant in the spring. It will also affect their ability to purchase spring seed and fund other agricultural inputs. And this is a scenario that could also be replicated in Ukraine.

MDA CropCast don't seem to believe the hype though, they released a world wheat production estimate for 2015/16 today of a record 720.4 MMT, a 7.8 MMT increase on their figure for the current season.

They are also not as bearish on wheat production prospects in Australia as some other analysts, standing by their forecast from last week of 24.04 MMT.

The pound slid below 1.60 against the dollar today, following last night's announcement from the US Federal Reserve that quantitative easing is to end this month. As we head into what some analysts call "Naughty November" it is worth noting that sterling has fallen against the US currency during the penultimate month of the year in 10 of the last 14 years, and in 14 of the last 20.

Talking of seasonal trends, there are also ones for London wheat, and Chicago corn and soybeans all to move higher in the last quarter of the year, a pattern that all three seem to currently be conforming to.

In other news, Euronext announced the launch of a Paris rapeseed meal and oil contract starting Nov 14th. The first delivery positions will be for next season's harvest.