EU Wheat Corrects Recent Strong Gains

03/12/14 -- EU grains cancelled out all of yesterday's gains, and then some, with the exception (again) of rapeseed, which continues to do its own thing.

At the close Jan 15 London wheat was down GBP4.60/tonne at GBP131.90/tonne, Jan 15 Paris wheat was EUR3.500/tonne lower at EUR187.00/tonne, Jan 15 Paris corn was EUR2.00/tonne weaker at EUR155.50/tonne, whilst Feb 15 Paris rapeseed traded EUR0.25/tonne higher at EUR337.25/tonne.

The recent market volatility continues. May 15 London wheat gapped higher yesterday, and gapped lower this morning, potentially signalling what the chartists call an “Island Reversal” - these are strong short term signals, showing the end of the near term trend, said Jefferies Bache. In this case, they are suggesting that the recent rally might be over.

Only time will tell if this is indeed the case, or whether the market is simply taking a "breather" before pressing onto new highs. We've come quite a long way in a short time, with both London and Paris wheat up 26-27% since the late September lows on a front month basis based on last night's closes.

The Russian government were supposed to be meeting today to discuss grain exports, but there have been no announcements out of Moscow as yet.

Various Russian trade groups are said to be lobbying the government, saying that there is no need for any form of export restriction, with a crop of 104-105 MMT on the cards this year - the second largest in post-Soviet history.

Late in the day Egypt confirmed that they'd bought 175 TMT of wheat for Jan 1-10 shipment in their latest tender. They were said to have paid $270.17/tonne including freight for 120 TMT of Romanian wheat and $273.40/tonne for 55 TMT of Ukraine origin wheat.

The French market was maybe a bit disappointed with that result, explaining some of the late weakness seen today.

Rabobank forecast a Q4 2014 Paris wheat price of EUR165/tonne, which is way below last night's EUR190/tonne close on the Jan 15 contract. They see prices recovering in the second half of next year, although the Q3 2015 estimate of EUR180/tonne and the Q4 figure of EUR185/tonne are still below where the market currently trades. This is also true of their forecasts for Chicago wheat in 2015.

They did however say that there is quite a large disparity between where Chicago wheat prices might end up, comparing a worst case scenario with a best case one. The former could see prices fall to around $5/bushel by the end of next year - around 19-20% below where they currently trade. A best case scenario, with adverse weather and increased geopolitical risk in the Black Sea, could push prices as high as $7/bushel - around 10% higher than current levels, they said.

The "base" case scenario however, sees Q4 2013 Chicago wheat at $5.25/bushel, rising only modestly to $5.60/bushel by the end of next year.

Despite the fact that this year's EU-28 wheat exports are outstripping the pace that went on to set a record last year, Rabobank forecast that ultimately these will show a 10% decline year-on-year by the end of 2014/15.

They also predict a global wheat crop of a record 718 MMT in 2015.