Nogger's Blog

06/03/15 -- EU grains closed mixed on the day, but mostly lower for the week.

At the finish, Mar 15 London wheat was GBP0.35/tonne easier at GBP116.25/tonne, Mar 15 Paris wheat was EUR1.75/tonne lower at EUR181.00/tonne, Jun 15 Paris corn was up EUR1.00/tonne at EUR159.00/tonne and May 15 Paris rapeseed rose EUR0.75/tonne to EUR362.50/tonne.

For the week, London wheat was GBP0.55/tonne lower, Paris wheat was down EUR6.50/tonne, corn was up EUR1.25/tonne and rapeseed fell EUR5.75/tonne.

It is interesting to see London wheat only falling a most 0.5% versus losses in Paris wheat of 3.5% during the course of the week, given the comparative strength of sterling versus the euro.

The pound hit 1.39 against the single currency today, its best level since late 2007, with some pundits now suggesting it might pass through 1.50 by the end of the year.

The euro meanwhile fell below 1.09 against the US dollar today, its lowest level since mid-2003 on speculation that the Fed will be the first of the majors to start raising interest rates, US unemployment fell to 5.5% - its lowest since May 2008 according to data out today. That compares to 5.7% in the UK and a whopping 11.2% in the eurozone.

The ECB is due to start new money printing measures next week, keeping prospects of a eurozone interest rate rise well into the future. The US might start to raise rates in the next few months however it is thought. That sees the pound going in the opposite direction versus the dollar (against which it fell close to 1.50 today - a level which it has only closed below once since the summer of 2013).

Essentially, what all this means is that the wheat market likely to have the most upside potential this year would appear to be the one in Europe, which is what makes this week's Paris wheat decline particularly interesting.

Euro weakness keeps aiding EU exports. Brussels said that they'd issued 505 TMT worth of soft wheat export licences this past week, taking the cumulative season to date total to 21.3 MMT, which is 2.4% ahead of last year's record pace.

If there is any upside potential for the wheat market in 2015, then the most likely driving influence still seems set to be Russia/Ukraine.

Early spring plantings are now underway in both countries, and winter crops there will soon be emerging from dormancy, and as snow cover clears we will soon start to get a more accurate assessment of what crop conditions are like.

APK Inform estimate Ukraine's winter crop losses at 8%, forecasting winter wheat yields this year to average 3.02 MT/ha, with those of barley at 2.47 MT/ha and OSR at 1.96 MT/ha.

Winter wheat yields in Ukraine averaged 4.0 MT/ha last year, according to the country's Hydrometeorlogical Centre, so an average yield of 0.98 MT/ha less in 2015 represents a fall of nearly 25% year-on-year.

APK Inform said that they expect Ukraine spring grain plantings to include 4.3 million ha of corn, 2.1 million ha of barley and 226k ha of wheat.

Fertiliser prices in Ukraine meanwhile are said to have more than trebled year-on-year in hryvnia terms.

The Ukraine Agrarian Confederation head today said that almost 100% of small to medium-sized agri companies in the country were unable to obtain credit to fund their spring planting campaign and aid the purchase of inputs. The few that can get credit were being asked to pay interest rates in excess of 30%, he added.

The situation in Russia might not be quite so bad, but it certainly isn't what you would call good either, with an estimated 20% of winter crops in poor condition. For all the government's insistence that subsidised loans are available to fund their spring campaign, private reports suggest that getting credit here is also extremely difficult, and for those that can the rates are also punitive.

Currency weakness and raging inflation means that the average Russian household meanwhile will have to spend more than 50% of their weekly budget on food by the end of 2015 a Russian newspaper reported this week. In the UK it's less than 10%.