EU Grains Mixed, Wheat Gives Up Early Gains

01/07/15 -- EU wheat posted decent early solid gains, with the French market initially building on yesterday's highest closes on the front month in over a year, and with new crop Nov 15 London wheat hitting it's best level since January. The latter contract saw high volume trade, getting as high as GBP136.50/tonne at one stage, although an afternoon turnaround in Chicago soon had European grains following suit.

It was almost as if the market suddenly realised that yesterday's USDA report was bearish for wheat, so why did Chicago wheat end over 30 cents higher?

At the finish Jul 15 London wheat was down GBP0.95/tonne to GBP116.70/tonne, Nov 15 was EUR1.05/tonne easier at GBP130.95/tonne, Sep 15 Paris wheat fell EUR0.25/tonne to EUR201.00/tonne, Aug 15 Paris corn was up EUR3.00/tonne to EUR189.75/tonne, whilst Aug 15 Paris rapeseed rose EUR1.25/tonne to EUR398.50/tonne.

Early strength was supported by concerns that EU crop production potential is wilting in the excessive heat that's around Europe this week. FranceAgriMer on Friday cut the proportion of the French winter wheat crop rated good to very good by four percentage points, and further reductions look likely in the coming weeks too.

Although they release their weekly reports on a Friday, they are actually based on conditions as per Monday of that week, hence we won't really get to see how much damage, if any, has been done by this week's searingly hot temperatures in France until we get next week's report on Jul 10.

The mercury is forecast to hit 39C in Paris today, and to almost match that at 38C on Friday - when the night-time low is set to be a balmy 26C!

In Germany meanwhile, Berlin is forecast to bake in temperatures of 36C on Saturday, peaking at 37C on Sunday.

The country's farmers union, Deutscher Bauernverband (DBV), yesterday estimated this year's German grain crop at 47.1 MMT, an 11% reduction on a year ago. Wheat production will fall 8.3% to 25.12 MMT, corn output is seen down 7.2% to 4.77 MMT, and the German rapeseed crop will tumble 20.5% to less than 5 MMT, they estimate.

A significant decline in plantings, combined with lower yields due to the neonicotinoid ban, has particularly hit rapeseed production this year, they said.

FCStone released their latest EU-28 crop production estimates today, and they are all lower than where the USDA currently stand with the wheat crop here at 140.68 MMT versus the USDA's current 143 MMT forecast. They see corn output at 66.64 MMT (68.14 MMT from the USDA) and rapeseed production at 21.33 MMT (22.10 MMT from the USDA).

The US remains excessively wet, whilst the forecast light showers will offer only very slight relief to the dry areas of the Canadian Prairies. The CWB cut their estimate for this year's Canadian canola crop to 12.6-13.0 MMT earlier in the week, and some private analysts are now saying that even that forecast is still "way too high" and that production could be closer to 10 MMT this year!

A report on Bloomberg today said that Australia & New Zealand Banking Group were likening this year's dryness in Canada to 2002, when wheat production fell to less than 16 MMT on yields of 1.83 MT/ha. The USDA currently has Canadian wheat yields this year at 3.02 MT/ha.

The old 2014/15 marketing year is now officially dead for many, with Russia expected to have exported a record volume of grain in what is technically now last season, despite the temporary duty introduced on wheat sales.

The Russian Grain Union estimate total grain exports in 2014/15 at 31.7 MMT, and Rusagrotrans say 31.9 MMT. The previous record year was 2011/12 when 28.4 MMT was shipped out, so that figure has been comfortably beaten this time round it would seem. Wheat will have accounted for around 21-22 MMT of that total it is thought.

Old crop carryout, including stocks held in the government's intervention fund, are called at around 14.8-15.0 MMT, a sizable figure, that will doubtless mean they will be their usual aggressive selves as soon as the 2015/16 harvest gets going in earnest. That's with the caveat that the new "floating" wheat export duty, which comes in today, doesn't rise too high.

Looking ahead, the Russian Grain Union now estimate the 2015/16 grain crop at 95-98 MMT, including 54-55 MMT of wheat. Rusagrotrans go for figures of 98 MMT and 57 MMT respectively.

Exports in 2015/16 are seen at 29-31 MMT, although there's a difference of opinion on wheat exports. Rusagrotrans has these at 20-21 MMT, but the Grain Union think that they may only total 17-18 MMT, hurt by the new export tax.

Finally, still feeling hard done to? Spare a thought for growers in Ukraine, where the State Stats Service said that agricultural production costs jumped 60% in the first five months of 2015 compared with the same period a year ago.