London Wheat Hits Two Month High

09/06/15 -- EU grains closed mixed, with both old and new crop London wheat pressing on to post their highest closes in what is just one day short of being two months.

Jul 15 London wheat ended GBP1.40/tonne higher at GBP119.35/tonne, Sep 15 Paris was EUR0.25/tonne weaker at EUR186.00/tonne, Aug 15 Paris corn was also down EUR0.25/tonne at EUR167.50/tonne, whilst Aug 15 Paris rapeseed stumbled EUR1.75/tonne lower to close at EUR372.75/tonne.

News of any great note was relatively lacking, but that shouldn't be the case tomorrow when we get the latest world supply and demand numbers from the USDA, along with ABARES take on crop prospects in Australia where winter plantings are currently underway. It could be a game of two halves in the latter location, with often favourable rains in Western Australia helping to compensate for potential yield reducing dryness in eastern states during an El Nino year.

The French Ministry released their latest production and acreage numbers, forecasting a French winter barley crop of 8.87 MMT, some 3.7% higher than a year ago. In contrast they predict winter rapeseed production to decline 7.5% to 5.1 MMT. French winter rapeseed plantings were seen down 1.8% and yields are forecast to fall 6.5% to an average of 3.44 MT/ha this year. The spring rapeseed area in France is negligible.

They didn't release any production estimates for wheat or corn, although they said that the winter wheat area was 5.17 million hectares, which is consistent with their previous forecast and a 3.2% increase on last year. It is also the highest since 1936. Corn plantings are seen 7.8% lower year-on-year at 1.71 million ha.

French growing conditions are "good" although winter and spring crops need rain to continue their promising development, they said. Most of the country has above average rains in the 14 day forecast. Current warmer than normal temperatures are expected to remain through to Friday, followed by a return to more normal conditions after that.

Russian analysts SovEcon said yesterday that the country's exporters have reduced forward wheat sales by around 25-30% due to concerns over the new variable export duty that kicks in on Jul 1.

Given the recent volatility in the value of the rouble, to which the duty will be linked, exporters have been lobbying the government to change the formula being used to one that is dollar-linked, which is of course the unit of currency used when making foreign sales. The government have thus far refused.

The Russian currency is down against the dollar by 11.2% in the past 3 weeks. The next duty kicks in if and when prices rise above RUB11,000/tonne. That was around $216/tonne when the new tax was announced, but today it's more like $197/tonne.

Egypt's GASC recently paid around $191/tonne FOB for Russian wheat, with a delivery date of Jul 1-10, so those sales are now much closer to attracting the new export tax than they were. If the rouble was to fall another 11.2% versus the US dollar in the next 3 weeks then the price at which the duty kicks in would only be the equivalent $175/tonne in dollar terms! That certainly explains exporter reluctance to commit.

Exporters do apparently have the ability to lodge sales with officials when they are made, according to Agrimoney, but there are various reasons why they would be reluctant to be quite so transparent with anybody, let alone the Russian government.

APK Inform said that Ukraine seaports shipped out 2.2 MMT of grains in May, an impressive 66% increase compared with 12 months previously. Most of that (82%) was corn, which was 125% more than the volume exported via seaports in May 2014.

The Romanian Farmers Association said that wheat production there could fall 30% this year, and rapeseed output could be down 15-20% on dryness, especially in the north and east of the country.

Reuters report that the Indian port of Kochi is currently discharging its first consignment of wheat in a decade. The MV Pan Edelweiss is currently offloading 32,000 MT of Australian hard wheat.

Traders there say that at least 10 vessels of a similar size have traded into India, with millers there estimated to have bought around 400 TMT of Australian wheat so far.

The Indian crop was badly damaged by late season rains and hail immediately prior to harvesting, which as well as knocking as much as 15 MMT off earlier production estimates, will also have had a negative impact on quality this year. Hence the need to import more higher grade wheat in to blend with their own inferior domestic supplies.

Scotiabank forecast the pound to rise to 1.50 versus the euro in 2016. Most leading analysts continue to lean towards a downwards trajectory for the single currency, with Lloyds predicting 1.45 by the end of the year and 1.47 in Q1 of next year. That should be supportive in the long term for Paris grain prices.