London Wheat Sets New 5-Year Low, Hampered By Sterling Strength

13/05/15 -- EU grains closed mostly lower, with both the pound and euro firming against a suddenly weaker US dollar.

The day ended with May 15 London wheat down GBP1.70/tonne at GBP105.65/tonne (a new 5-year low for a front month), Sep 15 Paris wheat stumbled EUR2.50/tonne lower to EUR171.00/tonne, Jun 15 Paris corn fell EUR1.00/tonne to EUR154.00/tonne whilst Aug 15 Paris rapeseed was down EUR0.50/tonne to close at EUR355.75/tonne.

The pound rose above 1.57 against the US dollar for a five month high, it also bobbed above (but didn't close at) 1.40 versus the euro - a level it has flirted with recently, but hasn't spent any prolonged time above since late 2007.

Now that the election issue has been settled there seems to be a bit more confidence about regarding the UK economic outlook.

News that UK unemployment fell to 5.5% in Q1 of 2015, down from 5.7% in the last quarter of 2014 and a bit below the 5.6% that most analysts were forecasting, was friendly for sterling. The ONS said that UK employment, at 73.5%, is at the highest levels since records began in 1971.

You will recall of course that UK wheat exports Jul/Mar were only 1.58 MMT out of the Defra estimate of an exportable surplus/free stock figure of almost 3.9 MMT. Sterling strength won't do anything to help that pace step up a gear, so it looks like we are stuck with a much larger carryover into the new 2015/16 season than we are used to.

Now that some decent rains have arrived, UK crop conditions are looking pretty good. We might not have a record wheat crop in 2015, but we should have a decent one as things stand, and the unusually large volume getting carried into the new season will make all that a challenge to move.

The last thing you want under these circumstances is a strong currency and the prospect of record production from our "noisy neighbours" across the channel - France.

The French Ag Ministry have fine-tuned their planted area estimates, pegging soft wheat plantings at 5.18 million hectares - the highest since 1936 and up 3.3% from a year ago. They haven't yet put a figure on actual production, but with FranceAgriMer telling us that 90% of the crop is in good to very good condition, the potential has to be there for this to be a record production year over there.

You may remember that ODA recently raised their French soft wheat yield forecast to 7.65 MT/ha, if that's correct then we are looking at a French soft wheat crop of over 39.6 MMT. That's up more than 2 MMT on last year and well above the average trade estimate of 38.1 MMT in a recent Bloomberg survey.

Recent rains will have helped the crop considerably, which is also the case in Germany and Poland which had been suffering from a relatively dry winter and beginning to spring.

Russia remains a wild card. They are expected to remove the export tax on wheat any day now, and shipments could therefore pick up considerably for the last couple of months of the season.

There's still a question mark over 2015 production prospects however. Currently less than 40% of the official government estimate for spring planting has been completed, with wheat planting less than 20% done.

The USDA yesterday estimated Russian wheat yields to be down 14% this year (although last year was a record, so potential this year essentially matches that of the 5-year average, they say).

Russian-based agronomist Mike Lee however thinks that yields potential this year could be down significantly more than that given all the problems growers there face this year - lack of credit, sky-high input costs etc.

Not to be outdone in insisting that everything is all right, the Ukraine Ag Minister said today that yesterday's USDA forecast for grain production there this year (wheat 22 MMT, corn 26 MMT and barley 6.2 MMT) is too low, without putting a figure on it himself.

Developments in these two countries would appear to be the bull's best hope for any sort of significant improvement in prices this year. Only time will tell if they get it.