May 15 London Wheat At GBP20/Tonne Discount To Paris Market

07/01/15 -- EU grains trade mixed, but mostly a little lower. Rapeseed in Paris was around EUR2.00/tonne higher. Fresh news remains generally lacking ahead of Monday's USDA WASDE and quarterly stocks report. They will also give us their thoughts on US winter wheat plantings then too.

At the close, Jan 15 London wheat was down GBP1.80/tonne at GBP133.10/tonne, Jan 15 Paris wheat was EUR1.55/tonne easier at EUR195.75/tonne, Mar 15 Paris corn was EUR3.75/tonne lower at EUR164.50/tonne and Feb 15 Paris rapeseed ended EUR1.75/tonne higher at EUR360.75/tonne.

May 15 London wheat has reached a more than GBP20/tonne discount to the equivalent May 15 Paris wheat contract for the first time ever today, the HGCA highlighted.

"The export pace of UK wheat has remained behind where it would need to be to balance 2014 production according to the latest available data," they said. Strategie Grains see UK wheat carryout at the end of the current season at 3.6 MMT, around 1.7 MMT higher than normal and at levels not seen since the intervention days.

"It will be interesting to see if the increasing UK discount manages to stimulate sufficient exports," the HGCA added.

With Nov 15 trading at around a GBP9.50/tonne premium to Jan 15, those growers carrying wheat currently feel under little pressure to sell on the spot market, unless they need the cash. Note though that this gap has narrowed from GBP12.00/tonne at the beginning of December.

Even so, this GBP9.50/tonne premium to carry wheat into new crop is still unusually high, the equivalent of more than 7%. Note that the current premium in Paris for Dec 15 over Jan 15 is only EUR2.25/tonne, or little more than 1%.

Brent crude fell below $50/barrel for the first time since May 2009 this morning, and WTI crude in the US slipped below $47/barrel, as that market continues under pressure.

Adverse weather conditions in the Black Sea and US are a threat to winter wheat unprotected by snow, although we won't get confirmation of how much damage has been done until the spring.

Russia's Ag Ministry said that the priority of grain production is for animal feeding, not exports. Since Russia issued various tit for tat sanctions against Western meat imports, domestic feed demand is likely to have increased.

APK Inform said that the new export duty on wheat will probably lead to 2014/15 Russian wheat ending stocks doubling from the previously forecast 5 MMT to around 10-11 MMT.

Agritel said that Russia exported 2.45 MMT of grain in December, down from 3.5 MMT a month previously. This was partly due to adverse weather conditions, and also a significant slow up in the issuing of the necessary paperwork, they said.

Ukraine's December grain exports also fell due to bad weather, down to 3.0 MMT from 3.6 MMT in November, they added.

Ukraine are said to be planning to cancel the VAT refund on grain exports, which may hit foreign sales for the remainder of the season.

Brussels said that they'd issued 965 TMT of soft wheat export licences in the past two weeks (no figures were released last week). That takes the season to date total to 14.6 MMT versus 14.4 MMT a year ago at this time.

The USDA estimates that EU all wheat exports will total 29 MMT this season, down 9% from 31.9 MMT a year ago.

Brussels also said that they'd issued 4.3 MMT of barley export licences so far this season, down from 4.8 MMT this time a year ago. The USDA estimate total EU barley exports at 6.7 MMT this season versus 4.9 MMT in 2013/14.

The pound and euro both fell to new lows against the US dollar.

Morgan Stanley said that the euro "is likely to remain a sell over the course of 2015 as ECB easing remains a prominent possibility and political risks loom large."

They hold a similar view on sterling too. "We remain bearish on GBPUSD. The BoE believes inflation could fall further, and both our economists and markets have pushed back their estimate of the timing of the first hike. What’s more, the latest OBR forecasts suggest that the UK’s fiscal position is worse than previously thought. Further austerity is likely, which will weigh on UK growth, supporting our bearish view."

The weak pound and euro should aid grain exports relative to those from the US.