EU Wheat Jumps On Nervous Short-Covering

18/05/15 -- EU grains began the week trading higher across the board, with wheat posting the biggest gains on what was probably a combination of nervous short-covering and bargain hunting.

The day ended with May 15 London wheat up GBP3.25/tonne at GBP111.35/tonne, Sep 15 Paris wheat jumped EUR5.50/tonne higher to EUR180.00/tonne, Jun 15 Paris corn gained EUR0.75/tonne to EUR155.25/tonne whilst Aug 15 Paris rapeseed was up EUR2.00/tonne to close at EUR355.75/tonne.

Fears that heavy and untimely rains on the US Southern Plains - linked to the developing El Nino - could be causing some crop damage, was one reason for the rally. That got the heavily short fund money spooked. "At least 4 inches but 6-8 inches of rain, locally, developed in Texas, Oklahoma and southern Kansas the past 2 weeks This amounts to s 5-6 times the normal rainfall in an area known for its dry climate.

Talk that Russia could be in for a hot and dry spell not too far down the line has also ruffled a few feathers. Spring planting there is only 55% complete on 17.1 million ha, which is 1.9 million ha less than a year ago.

Showing signs of nerves that all was not going as well as hoped for, the new Russian Ag Minister has said that regional authorities should make every effort to increase the pace of spring planting - in particular Siberia and the North West Federal District.

Rainfall is likely to be sparse for wheat in the former Soviet Union in next 10 days, according to the Commodity Weather Group. Moisture stress could start to build in Southern Russia by the end of the month, although Ukraine may get some rain next week, they add.

Meanwhile "there are growing indications of a significant warm-up that is going to take place over the Volga and Southern districts of western and central Russia over the next 2-5 weeks," said

The Russian Ag Ministry said that the nation's wheat exports were down 60% from a year ago at 1.61 MMT since the Feb 1 wheat export duty came into force. Even so, season to date exports of wheat are still up 16% at 20.08 MMT. The market is expecting that this figure could be 21.0-21.5 MMT by the end of the season.

Spanish analysts AgroInfoMarket trimmed their forecast for the country's soft wheat crop from 6.19 MMT to 5.75 MMT, although that's still up 2.9% on output of 5.59 MMT a year ago. They also reduced their forecast for Spanish barley production by almost a million tonnes, down from 8.34 MMT to 7.39 MMT, although again that's better than the 6.74 MMT produced in 2014.

Adverse weather conditions in recent weeks was the reason given for the production cuts, and they said that further damage could be caused if the current heatwave persists. Temperatures topped 40C in many parts of Spain last week, breaking records for the month.

State broadcaster TVE said some estimates calculated agricultural losses could exceed 50 million euros due to the scorching heat.

For now though, AgroInfoMarket left their estimate for Spanish soft wheat imports unchanged from last month at 3.31 MMT, but they raised their view on corn imports by 200 TMT to 5.95 MMT and doubled their estimate for barley imports to 500 TMT.

The USDA's FAS in Saudi Arabia estimated the country's 2015/16 barley imports to fall slightly, down 200 TMT to 6.8 MMT, with the nation importing more wheat and corn. Wheat imports are seen rising 300 TMT to 3.8 MMT and corn imports expected to increase 1 MMT to 4.45 MMT.

The stronger US dollar was a supportive factor for both London and Paris wheat today. Barclays forecast the US currency beating sterling down to 1.39 in Q3 of 2015, and 1.36 by Q1 of next year. The euro meanwhile will dip to parity in Q3 and below it to 0.98 versus the dollar by the end of the year, they predict. Both events would be friendly for exports, and potentially grain prices here in Europe, if they are correct.