Nogger's Blog

28/11/14 -- EU grains opened in the red, following a slump in crude oil values, which staged their own "Black Friday" by falling to to 4-year lows after OPEC's decision not to cut production quota's. However, things changed around mid-morning, and by the end of the day wheat and corn were higher, although rapeseed closed mixed.

At the finish Jan 15 London wheat was up GBP2.15/tonne at GBP131.80/tonne, Jan 15 Paris wheat was EUR3.75/tonne higher at EUR184.25/tonne, Jan 15 Paris corn was EUR1.25/tonne firmer at EUR152.25/tonne, whilst Feb 15 Paris rapeseed closed EUR0.75/tonne easier at EUR337.00/tonne.

For the week, nearby London wheat gained GBP3.80/tonne, with the Paris market EUR6.50/tonne higher. Corn was unchanged versus last Friday and rapeseed lost EUR2.00/tonne. For London wheat this was the highest close for a front month since July 17, and for Paris wheat it was the best finish since July 4.

Respected Russian analysts SovEcon, who earlier in the week had said that the country's 2015 grain harvest could fall below 90 MMT, now suggested that a crop of 86 MMT could be on the cards (this year's harvest officially now stands at 110.3 MMT with 2% of the crop still to be cut). Russia's winter planted crops are currently in the worst state on record, they said.

The risk of winterkill is high, with temperatures as low as -15 to -20 C in the Volga and Central regions, coupled with a lack of snow cover, they added.

Meanwhile, a report on Reuters that Russia could consider introducing a floating tariff on grain exports "as a measure of last resort" to defend its domestic grain markets in 2015 also raised a few eyebrows.

Further muddying the Russian waters, a statement by the country's Veterinary and Phytosanitary Surveillance Service (VPSS) that it was introducing a series of new (but unspecified) regulations that could lead to a "significant fall in grain exports" also caused a stir.

Whether the implied threat of some form of grain export restrictions is merely posturing by a government, reeling from Western sanctions against it, is unclear. What is crystal clear however is that the Russian rouble is at all time lows against both the US dollar and the euro.

That is causing inflation, and leading Russian farmers to hold onto their remaining grain stocks as a hedge against both that and the falling domestic currency. With every day that passes, as the rouble declines a little bit more, local prices for wheat rise. This offers little incentive to sell today, when prices are higher tomorrow - at least in rouble terms.

Another thing for the market to ponder about across the long and chilly winter (as we won't really know the extent of winter damage suffered by Russian crops until February or March) is how Russian farmers will be able to fund their spring planting program and the purchase of other inputs. The weakness of the rouble is hiking the cost of these items, and also the lack of access to Western credit means that borrowing money in Russia is now a difficult and very expensive exercise.

Maybe Moscow is starting to think that hanging onto a significant proportion of this year's crop as "insurance" against a potentially much lower harvest in 2015 might not be a bad idea?

Plunging temperatures across Russia are also now beginning to have an effect on logistics, with ice on the Azov Sea starting to cause shipment issues.

All of this could keep international buyers coming back for European wheat. Brussels issued 518 TMT worth of soft wheat export licences this week, taking the cumulative season-to-date total to 12 MMT. That's up on 11.2 MMT a year ago, and yet the EU Commission, the USDA, the IGC and anybody else with an official opinion all have significant declines pencilled in for 2014/15 EU wheat exports versus last season's record total.

Weakness in crude oil values meanwhile, is also potentially bad news for the pound as the UK is a net exporter of oil. That should help exports in theory, although in practise there's little sign of this happening yet it has to be said.

Elsewhere FranceAgriMer said that French winter wheat was now 99% planted versus 90% a year ago. Emergence is at 95% compared to 80% a year ago. They rated the crop at 93% good to very good, unchanged on a week ago and up versus 71% this time last year.

The French corn harvest was 98% complete as of Monday, up 3 points in a week and ahead of only 72% done this time last year, they added.

The IGC appeared to suggest that comments made by Agrii earlier in the week that UK winter rapeseed plantings could be down 10% this year, are representative of what is happening all across Europe - and they're probably right.

Farmer dissatisfaction with current prices, coupled with the new rules on neonicotinoid sprays, mean that the EU-28 rapeseed area will fall to a 3-year low 6.4 million hectares, they said. Yields could also be down next year as the new legislation is leading to "unusually high levels of insect damage," they added.

The IGC also highlighted potential problems with Ukraine's winter OSR crop, which is rated 20% weak/thinned compared to only 5% this time last year.

Ukraine farmers will also face a similar dilemma to their Russian counterparts regarding lack of credit and an acutely weak local currency when they come round to attempting to fund their spring planting/replanting program and their fertiliser/agrochemical purchases.