EU Attempts Modest "Turnaround Tuesday"

04/08/15 -- EU grains closed mostly a little higher, in a modest "turnaround Tuesday" style reversal of some of Monday's losses.

At the close Nov 15 London wheat was GBP0.30/tonne easier at GBP118.00/tonne, Sep 15 Paris wheat was unchanged at EUR178.25/tonne, Aug 15 Paris corn was EUR1.00/tonne higher at EUR175.00/tonne, whilst Aug 15 Paris rapeseed was up EUR2.25/tonne at EUR378.75/tonne.

Harvest pressure and strong competition from the Black Sea are capping any potential price rises, at least for now. News that Russia might be considering changes to the current floating export duty on wheat leans a bit bearish, although you can never quite be 100% sure with the Russians.

The governor of the Stavropol region has appealed to the Russian PM to raise the figure at which the more than nominal RUB50/tonne duty kicks in from RUB11,000/tonne to RUB15,000/tonne.

He notes that the RUB/USD exchange rate was around RUB51 when the duty was announced. It's now around RUB62. This explains why Russian shippers exported the smallest July wheat volume since 2009 last month.

RUB11,000 is the equivalent of around USD175, or GBP112 at today's rates, which is well below where Russian FOB offers sit. A hike to RUB15,000 would take that up to around USD238.50/tonne, or GBP153/tonne, which is well above world market price, allowing Russian milling wheat to flood onto the global market without restriction.

The government did say when the duty was introduced that if it proved to be unworkable than they would consider changing the formula. We can only now wait and see what they do next.

The Russians announced today that they will begin intervention purchasing on Aug 11. The price they are looking to pay in the European part of the country is RUB9,700/tonne for so-called 3rd grade milling wheat, and RUB9,500/tonne in the more remote Asian part of the country.

That's the equivalent of around USD154/tonne, or just GBP99/tonne in European Russia and USD151/tonne, or GBP97/tonne in the Asian part. For 12.5% milling wheat! No wonder then that farmers and exporters alike are asking for changes to the duty.

The 2015 Russian grain harvest meanwhile is 27.9% complete on 13 million ha, producing 42.2 MMT of grain to date, with yields averaging 3.24 MT/ha, down 4.7% on 3.40 MT/ha a year ago.

There are clear signs that the gap between the average yield this year and last is staring to widen as the harvest progresses, despite government assurances that a total grain crop of at least 100 MMT is on the cards this year.

Across the border (there is still a border there isn't there?), Ukraine say that their early grain harvest is 85% complete on 8.7 million ha producing a crop of 30.1 MMT to date. Yields here are averaging 3.46 MT/ha.

That includes a wheat harvest of 22 MMT that is 86% complete, and a barley harvest that's 90% done producing 7.4 MMT so far. They've also harvested 91% of their 2015 rapeseed crop producing 1.6 MMT to date.

The Ukraine Ag Ministry say that they country will export a record 36 MMT of grains this season, up from the previous all time high 34.6 MMT set in 2014/15.

They've already hit the ground running, exporting 2.5 MMT of grains in July.

The EU Commission have cut 2.9 MMT off their EU-28 corn production forecast, taking that down from 68.4 MMT to 65.5 MMT, as that crop bears the brunt of recent heat and dryness on the continent.

They've also trimmed down their EU-28 rapeseed production estimate by 1 MMT to 20.7 MMT. The USDA were at 21.4 MMT for that last month versus 24.3 MMT a year ago. Soft wheat production was also cut 1 MMT to 139.5 MMT.

Iran said that they are out of the international wheat import market until the spring of 2016 following a good harvest there, and allowing for existing purchases.

At home, the Farmers' Weekly report that the UK wheat harvest has begun, with one Herts farmer cutting Gallant 2nd wheat over the weekend and achieving a nice yield of 10.5 MT/ha. For any American readers out there, that's 156 bu/acre!