EU Grains Comments: Too Much Wheat, Not Enough Corn

11/09/15 -- EU grains closed mostly lower on the day, but generally a bit steadier compared to last Friday.

At the finish, Nov 15 London wheat was unchanged at GBP112.00/tonne, Dec 15 Paris wheat was down EUR1.50/tonne at EUR167.25/tonne, Nov 15 Paris corn was EUR1.00/tonne firmer at EUR165.00/tonne, whilst Nov 15 Paris rapeseed was EUR2.00/tonne lower at EUR363.25/tonne.

For the week that puts Nov 15 London wheat GBP1.00/tonne higher, with Dec 15 Paris wheat up EUR1.50/tonne, Nov 15 corn EUR3.50/tonne steadier and Nov 15 rapeseed EUR7.00/tonne firmer.

The USDA today raised their projection for Europe's 2015/16 all wheat exports to 32.5 MMT, up 1.5 MMT on last month and now only 8% behind last year's record 35.4 MMT total.

Meanwhile they raised their forecast for this year's EU-28 all wheat crop by a whopping 6.3 MMT from only a month ago to 154.1 MMT, a total beaten only by last year's record 156.5 MMT.

"With newly arriving harvest results, significantly higher than expected yields are being recorded. Yields that had been reduced earlier in the season are now being revised upward across the EU," they said.

They increased the size of the French all wheat crop by 2.7 MMT from last month to a new record 42.5 MMT. Germany's crop was also raised by 0.4 MMT and the UK's upped by 0.7 MMT to 16.0 MMT - the latter being consistent with trade thinking.

Whilst Europe might have a second bumper wheat crop on it's hands, that isn't how things look in the case of corn though. The USDA took 4.3 MMT off their EU-28 corn production estimate, now pegging output here at 58 MMT. That's 17.3 MMT, or 23%, less than last season's record volume.

"Almost every producing nation in the EU is estimated to have lower production after a summer with excessive heat and dryness. Rainfall returned to most areas in August, preventing a larger decline but significant damage is still being realized," they said.

The French crop was estimated at 13.5 MMT, down 0.5 MMT from a month ago, which is consistent with recent forecasts from the Farm Ministry and FranceAgriMer. The drop was due to an increase in farmers switching corn into silage use, they said.

They increased EU corn imports in 2015/16 by 1 MMT to 16 MMT, which is now 78% more than the 9 MMT brought in last season.

Essentially then we have a lot more wheat than expected in Europe this year, and a lot less corn. EU corn consumption was only forecast 1 MMT lower than last season, necessitating the need for a sharp hike in imports. Corn ending stocks in Europe will also decline 43% year-on-year, they project.

In the case of wheat, Europe will import around 6 MMT this season, a total very similar to 2014/15. Domestic usage will rise 2 MMT to 125.9 MMT and ending stocks are seen up more than 3.0 MMT on a month ago and 1.8 MMT more than they were at the end of last season (and the largest since 2009/10) - and that's IF we can manage to export 32.5 MMT in 2015/16. To do that things really need to pick up markedly.

Brussels reported last night that they'd issued 355 TMT worth of soft wheat export licences this past week. Whilst that's up 28% on last week's paltry total, it's still not enough. Cumulative licences to date are now already more than 30% behind last year's pace at 3.69 MMT, yet the USDA are expecting these to only be 8% behind come the end of the season.

Also of note is that Europe's leading exporting nation France only picked up 26% of the past week's total.

Separately, FranceAgriMer today estimated that the French corn crop was rated 56% good to very good. That's one point better than a week ago, but still 30 points down on this time last year. The 2015 corn harvest has now just about started in the Rhone Alps region, they added.