Nogger's Blog

06/08/15 -- EU grains traded both sides today, but soon edged higher, although not before Nov 15 London wheat set another new lifetime contract low of GBP116.50/tonne.

A suddenly firmer US market started adding a bit of support around midday.

I guess that you could still say London wheat is range-bound, it doesn't seem to feel comfortable trading above GBP130/tonne, having only managed to close above that level three times since the first week of January on the continuous chart.

At the close, Nov 15 London wheat was up GBP1.00/tonne to GBP119.00/tonne, Sep 15 Paris wheat was EUR3.75tonne higher at EUR182.00/tonne, Nov 15 Paris corn is up EUR4.50/tonne to EUR182.75/tonne, whilst Nov 15 Paris rapeseed was EUR1.75/tonne firmer at EUR382.50/tonne.

Sharply lower anticipated EU corn production this year means that the front month corn market is now trading at a premium to wheat in Paris for the first time in two years.

Russia won a second clean sweep in yesterday's Egyptian tender, although the cheapest French offer was only a dollar away from matching the winning bids, at least on an FOB basis. That's maybe offering some encouragement to the market.

Recent rouble weakness maybe helped Russia win the Egyptian order yesterday, but it also means that the exporters need to cough up a duty payment of around RUB500/tonne, which is the equivalent of something like $7.80/tonne.

The Russian government appear willing to alter the way that the tax is calculated, although it may be unlikely that they will simply raise the ceiling at which it kicks in to RUB15,000/tonne as the governor of the Stavropol region is requesting. Yesterday's winning Egyptian offers were made at the equivalent of around RUB12,000/tonne.

That also means it's unlikely that the government's freshly announced intervention purchase programme in which it is prepared to pay the princely sum of RUB9,700 for 3rd grade milling wheat will be met with a large queue of willing sellers.

Sticking with Russia, the 2015 grain harvest there is now said to be 30.3% complete on 14.2 million ha producing a crop of 45 MMT to date. Yields continue to slip away, and are now averaging 3.16 MT/ha, down 4.8% on a year ago.

That trend is expected to continue. Average yields in the Central region are only 3.13 MT/ha versus 3.81 MT/ha a year ago. The Volga is running at an average of 1.77 MT/ha compared to 2.13 MT/ha in 2014, and the Far East region is at just 1.67 MT/ha, down from 2.30 MT/ha last year.

Despite this, MDA CropCast today raised their forecast for the Russian wheat crop this year by 1.25 MMT to 56.3 MMT, although that's still a million or two less than where most other analysts line up. They also cut their view on EU-28 corn by 1.8 MMT to 57.2 MMT, which is well below the EU Commission's 65.5 MMT estimate from earlier in the week and the average in a Bloomberg survey of 62.8 MMT.

Significantly less EU corn in 2015/16 should increase demand for other feed grains, which is just as well, with a sharp rise in the percentage of the crop only suitable for feed seen in various eastern European nations, and probably in both Ukraine and Russia too.

At home, the Bank of England surprised nobody by leaving UK interest rates on hold at 0.5% for what is now the 78th month in a row. Concerns over China and Greece meant that although the vote wasn't unanimous, it was 8-1 against a rise.

Most don't expect rates to start to rise until early 2016, and then only very slowly indeed. That's probably enough to underpin sterling against the euro going forward though.