EU Grains Stumble Hindered By Firmer Sterling/Euro

18/06/15 -- EU grains closed mostly lower, with London wheat once again hindered by a suddenly firmer sterling on speculation that a UK interest rate rise might not be too far away.

At the close, Jul 15 London wheat was GBP1.50/tonne lower at GBP111.50/tonne, Sep 15 Paris was EUR0.25/tonne weaker at EUR178.25/tonne, Aug 15 Paris corn was down EUR1.00/tonne at EUR162.00/tonne, whilst Aug 15 Paris rapeseed had fallen EUR1.50/tonne to close at EUR373.50/tonne.

News that UK wages are up 2.7% this month, compared to only 2.3% higher the previous month and market expectations of only a 2.1% rise, are buoying the pound. The Bank of England has long since said that the timing of interest rates in the UK finally beginning to rise is closely linked to improved earnings being able to support the move.

With these apparently now rising much faster than inflation, and unemployment also falling, the forex market is starting to think that a UK interest rate rise might not be too far away.

The minutes of the latest MPC meeting on monetary policy show that two members of the committee were "finely balanced" on whether to leave UK rates on hold or start to raise them. There could be a few more now starting to waiver next month.

This news comes just after the US Federal Reserve trimmed US growth forecasts and signalled a shallower path for interest rate rises there in the year ahead. Up until now the market had been factoring in US interest rates to start rising sooner than those in the UK, but now it's starting to look like the opposite could in fact be true.

The dollar was lower against even the euro today, with the German Chancellor Angela Merkel saying that she is "still convinced" that a Greek debt deal is possible.

A firmer sterling and euro were therefore a bit bearish for the EU grain markets today.

Strategie Grains cut their forecast for EU soft wheat production by 1 MMT to 141.6 MMT, and lopped 300 TMT off their durum wheat estimate too, taking the EU all wheat crop to 149.3 MMT, which is now 1.4 MMT less than the USDA's most recent forecast. Dryness in France, Germany, Poland and Spain was the main reason for today's cuts.

MDA CropCast trimmed 1.13 MMT off their world wheat production estimate this year, coming out with a figure of 710.7 MMT, a modest 1.2% decline on last year. The continued excessive wetness in the US saw them knock 0.43 MMT of winter wheat production there. They now have the US all wheat crop at 59.5 MMT this year, which is nevertheless still more than 6% up on a year ago.

Ukraine's wheat crop was raised 0.25 MMT to 23.0 MMT, a 3.8% fall compared to last year. Russia's was left unchanged at 55.0 MMT, a 5.3% decline on a year ago. Russia's anticipated crop size keeps nudging higher, they were calling it at 53.9 MMT at the beginning of March. Other analysts now think it could come in as high as 59 MMT, which would be little changed on a year ago.

Rosstat said that Russia's Jun 1 grain stocks in the hands of "harvesting and processing organisations" were 14.6 MMT, up 3.1 MMT (or +26%) on a year previously. Wheat accounted for 5.23 MMT of that total, a near 28% rise compared to 12 months ago. Grain stocks held in other hands were 7.8 MMT, also 26% more than a year ago.

MDA CropCast pared back their forecasts for the EU corn and barley crops this year too. They now estimated corn production here at 61.7 MMT, down 0.25 MMT from a week ago and 9.3% below last year. Barley production was seen at 56.2 MMT, down 0.34 MMT from last week and 2.4% below last year's output.

The move is consistent with other analysts ideas, with the German farmers co-operative DRV yesterday reducing their forecasts for wheat, corn, barley and rapeseed production there this year on dryness, adding that further losses are feared if the current warm and dry conditions continue.

The combines are said to be rolling in southern Russia, and probably also are in Ukraine too, bringing in the first of the 2015 winter barley crop. Isolated parts of France are also said to be cutting barley.