EU Grains Start Week In The Red On Harvest Pressure

03/08/15 -- EU grains began the week in much the same style as the previous week, and in fact the one before that - on the slide.

At the close of play, Nov 15 London wheat was down GBP1.55/tonne to GBP118.30/tonne, Sep 15 Paris wheat fell a EUR2.25/tonne to EUR178.25/tonne, Aug 15 Paris corn was down EUR0.25/tonne to EUR174.00/tonne, whilst Nov 15 Paris rapeseed was EUR0.75/tonne lower at EUR376.50/tonne.

Just when you thought things couldn't get any worse for the wheat market, Senalia, announced that they were suspending the intake of wheat at their Rouen facility (again) due to the rapid post-harvest delivery rate, weak demand for milling wheat cargoes and strong demand for French barley shipments.

Senalia's operation is the largest one of the only two silos in Rouen that are an approved delivery point against the Paris milling wheat futures contract.

The French wheat harvest was 70% complete as of a week ago, FranceAgriMer reported on Friday.

The harvest is throwing up generally good to very good yields, with only a limited impact from the water deficit experienced in May and June, say Agritel.

The same might not be true for corn though. MDA cut their forecast for the French corn crop by 670,000 MT from a week ago to 14.57 MMT, Bloomberg report. Some other trade estimates are closer to 14 MMT. Output was 17 MMT in 2014.

The fact that this year's French crop is a better and more consistent quality than last year's, and the sharp drop in corn production there and elsewhere in Europe this year, should help wheat exports in the long run. The consistently weak euro won't do any harm either.

That still leaves sterling-based London feed wheat paddling it's own canoe though, and the waters that lie ahead look pretty choppy.

We see the pound hovering around a 7-year high versus the euro, large carryover stocks from last year and harvest pressure just around the corner.

And all that comes at a time when we've got one bioethanol refinery with it's doors firmly shut, and another beset by various problems that's said to only be running at only around 25% of capacity.

Nov 15 London wheat dipped below GBP118.00/tonne at one point today, within sight of the lifetime contract low of GBP117.25/tonne set in May. I wouldn't rule out a test of that level again at some point this week.

Meanwhile Ukraine are exporting at a rapid pace. APK Inform said that seaports there shipped out an impressive 707.6 TMT of grains last week, up from 581.3 TMT the previous week. That included 302.3 TMT of wheat, 159.3 TMT of barley and 246 TMT of corn.

Ukraine's July grain exports totalled 2.5 MMT, of which almost 700 TMT was wheat, 976 TMT was corn and 819 TMT was barley. There was a further 283 TMT of grains loaded waiting to go at the end of the month too.

Russia's export effort has been less impressive. How much of this is due to the new floating export tax on wheat and how much is simply down to the delayed harvest is unclear.

They shipped out 1.6 MMT of grains in July, a 43.5% decrease versus the same month in 2014, according to data from the Ag Ministry. Most of what was shipped out was wheat (almost 1.2 MMT), which may suggest that exports will pick up as the harvest advances.

The Russian grain harvest is only 28% complete so far on 13 million ha, which is 8.5% less than this time a year ago.

Bloomberg report that the governor of the large grain producing Stavropol region has asked the Russian PM to increase the level at which the floating export duty on wheat kicks in from RUB11,000/tonne to RUB15,500/tonne.

Such requests usually fall on deaf ears. The rouble hit a new 5-month low versus the US dollar today.

Intriguingly, Reuters and some other new agencies report that the Russian PM has ordered the preparation of (new) proposals on a grain export duty. It's unclear if the aim is supposed to boost exports or restrict them.

With the PM standing by his estimate for a Russian grain harvest of 100 MMT this year (domestic consumption is typically around 70-72 MMT) and unusually large carryover stocks held over from last year following the previous export duty that was in place from February through to May, it should be the aim to try to boost foreign sales you would have thought.