Is Spec Money Coming Back Into The Grains Sector?

17/10/14 -- EU grains finished narrowly mixed on the day, but mostly higher for the week.

At the finish Nov 14 London wheat was down GBP0.55/tonne to GBP116.45/tonne, Nov 14 Paris wheat ended EUR0.50/tonne firmer at EUR160.00/tonne, Nov 14 Paris corn fell EUR0.50/tonne to EUR142.50/tonne, whilst Nov 14 Paris rapeseed was EUR0.75/tonne lower at EUR322.00/tonne.

For the week that puts front month London wheat up GBP3.70/tonne, with Paris wheat up EUR1.25/tonne, corn up EUR1.75/tonne and rapeseed EUR2.00/tonne weaker.

There was a general dearth of fresh news. There is however some evidence that fresh spec money is coming back into the grains sector, wooed away from falling global equities. Whether this is the beginning of a long-term trend it's too early to say.

The FTSE 100 hit a 15 month low yesterday, and had fallen 8.6% in the past month in lunchtime trade. The S&P 500 is down 7.4% and the Dow Jones Industrial Average 6.7% lower compared to a month ago too. In the same period Chicago wheat has risen by 9.5%, and there's some debate as to whether the traditional October lows are now already in for corn and soybeans as well.

This might be tempting some fresh money back into the grains sector it is thought.

The credibility of the Paris wheat contract took another blow when in a surprise, and controversial move, LCH.Clearnet - the clearing house behind Euronext - announced today that they are to introduce an extra margin call on short positions in the Nov 14 contract.

The move looks aimed at "encouraging" shorts to close out their positions, rather than run them to the wire with the intention of delivering against them - something which to the embarrassment of the exchange they probably won't be able to do as the two sole delivery points are still not open for intake of wheat.

There's still on open interest of the equivalent of around 4.5 MMT against the Nov 14 contract, which is way beyond the capacity of these two stores anyway, even if they were currently empty!

Brussels confirmed that they'd issued 945 TMT worth of soft wheat export licences this past week, the highest weekly total of the season so far. The cumulative export licence total is now 8.4 MMT for the current marketing year. That beats the 8.0 MMT that had been granted this time a year ago, despite the fact that the EU Commission sees soft wheat exports down by almost 17% in 2014/15 versus last season's record.

Ukraine seaports shipped 3.536 MMT of grains in September, a more than 50% increase compared to the same month in 2013. The Ukraine Ministry said that the country might export a record 34.3 MMT of grains this season, up from the existing all time high 32.8 MMT shipped out in 2013/14. The new projection would include 17.9 MMT of corn, 11.7 MMT of wheat and 4.16 MMT of barley, they say.

The Russian Ministry said that their 2014 grain harvest had now reached 105.2 MMT, with around 7% of the planned area still left to cut. That total includes 60.5 MMT of wheat, 20.9 MMT of barley and 8.3 MMT of corn.

Russian winter grain planting is nearing completion at 16.1 million ha, or 97.6% of plan. Good rains are in the forecast. In Ukraine, Agritel report that heavy rain has fallen over most of the country in recent days, creating favourable conditions for winter crop development there.

FranceAgriMer said that the French corn harvest was 19% done as of Monday, up ten points from a week ago and compared to only 5% complete a year ago. The crop was rated at a high 87% good to very good, the same as a week ago, and far better than only 57% this time last year.

French winter wheat planting is 34% complete versus 23% last week and 36% a year ago. The winter barley crop for next year is 55% sown versus 43% a week ago and 62% this time last year.