EU Grains Recover Some Composure

25/08/15 -- EU grains managed to mostly stage a mini "Turnaround Tuesday" of their own today, recovering most of yesterday's losses.

News that China was to cut interest rates 0.25% to 4.6% tomorrow seemed to reassure global equities markets, with stocks in London, Paris and Frankfurt all posting decent gains.

At the close, Nov 15 London wheat was down GBP0.30/tonne to GBP115.00/tonne. In Paris Sep 15 wheat gained EUR2.00/tonne to EUR165.50/tonne, Nov 15 corn added EUR0.25/tonne to EUR172.25/tonne and Nov 15 rapeseed was up EUR6.00/tonne to EUR354.75/tonne.

Crude oil was higher too today, and the recent spate of euro strength also saw a mini reversal, boosting Paris grains a little.

APK Inform reported that Russian shippers has all but stopped selling milling wheat onto the international market until the rouble stabilises. The current mechanism for calculating the cost of the export duty incurred on selling wheat abroad carries too many risks, they said.

The Russian government are supposed to be looking into alternative ways of calculating the duty and/or raising the ceiling at which it kicks in. A decision on that isn't expected for at least another couple of weeks at the earliest though.

The Russian currency is currently falling so fast that in rouble terms domestic grain prices are rising, they said.

As mentioned yesterday when the sky was falling in, looking back to the last Egyptian tender where they paid $184.39/tonne for Russian wheat on an FOB basis. At today's exchange rate that's around RUB13,000 - well above the level at which the duty kicks in, and in fact RUB1,000 more than the equivalent when the deal was done.

The higher the price paid in rouble terms, the larger the export duty due. According to my calculations, when the last deal was done the duty payable was around $7.50/tonne, today it would be around $14/tonne - almost double.

So the duty payable has doubled in little more than a week, and the consignment that was sold still won't be shipped until the end of September. The risk on what the rouble might do between now and then could be hedged, but the possible value of the export duty can't really.

Hence the slowdown in Russian sales. Of course this doesn't mean that the wheat isn't out there to sell, it just isn't really coming onto the market yet. As, when and if the Russian government does change the mechanism then that could change. They are still confidently predicting a 59.8 MMT wheat crop this year.

The 2015 Russian wheat harvest is now past halfway done, and yields so far are down more than 9% at 3.15 MT/ha - only about 54% of the European average predicted by MARS yesterday.

That's a pipe dream for a Kazakhstan farmer though, average yields these this year are only 1.51 MT/ha. Amazingly, this is up by almost a third on a year ago!