EU Grains Dragged Down By Falling Crude

27/11/14 -- EU grains drifted mostly lower from yesterday's 4-month highs, with a general lack of fresh news in the grain markets on evidence, and US markets closed for Thanksgiving. Weak crude oil prices were however a feature, with OPEC seemingly split over whether to cut production to salvage falling prices or not.

At the close Jan 15 London wheat was down GBP1.60/tonne to GBP129.65/tonne; Jan 15 Paris wheat was EUR1.75/tonne weaker at EUR180.50/tonne; Jan 15 Paris corn also fell EUR1.75/tonne to EUR15.00/tonne; Feb 15 Paris rapeseed ended EUR5.50/tonne lower at EUR337.75/tonne.

The largest UK wheat harvest since 2008 means that the US has a 22% higher wheat availability in 2014/15, approaching 20 MMT, say Defra.

That figure comes even with UK wheat imports this season projected 44% lower at 1.3 MMT.

The better quality of this year's crop means that flour extraction rates will be higher, therefore the milling industry will require less wheat to produce the same volume of flour, they said. Usage within the bioethanol sector will rise though, so overall demand from the H&I sector is seen increasing 5% to 7.8 MMT.

Lower milk and beef prices, and improved availability of forage this season, means that cereal demand from the feed industry will decline 1% year-on-year, they add. Cheaper wheat prices will however mean that more of that is incorporated into the diet (and less imported corn), with wheat usage in feed seen increasing 9% to over 6.7 MMT, they forecast.

The bottom line is that the difference between wheat availability and demand is almost 5 MMT this year. Using their "operating stock requirement" of 1.5 MMT, this still leaves almost 3.5 MMT left over for export in 2014/15.

Given that we exported less than 300 TMT in the first quarter of the season (Jul/Sep) it doesn't look very likely that we will get anywhere near a number like that.

Potentially then, that leaves a much larger than normal carryover into 2015/16, which could make the tail end of the current season quite interesting.

Footnote: In early morning trade on Nov 28, on the synthetic WTI market, NYMEX crude trades around $5/barrel lower and is now below $70/barrel for the first time since May 2010. This will doubtless have a spillover effect on the EU and US grains and oilseed markets when they begin to trade later in the day.