EU Grains Consolidate Mostly Lower For Second Session

29/09/15 -- EU grains closed mixed but mostly lower, in further consolidation from last week's gains. London wheat got some support from a weaker sterling to finish a bit higher on the nears.

Talk of a wetter outlook for Russian and Ukraine winter grain areas seems to have taken the wind out of wheat's sails, at least for now.

At the close, Nov 15 London wheat was up GBP0.35tonne to GBP115.50/tonne, Dec 15 Paris wheat was EUR2.00/tonne easier at EUR173.75/tonne, Nov 15 Paris corn was EUR1.00/tonne lower at EUR162.50/tonne, whilst Nov 15 Paris rapeseed was down EUR0.25/tonne at EUR367.25/tonne.

Fresh news was pretty thin on the ground today. Sterling closed below 1.35 against the euro last night for the first time since early May. It is also trades only marginally above the lowest close since early May versus the US dollar too.

The outlook for the pound then is interesting, is this weakness likely to continue - which would be theoretically supportive for London wheat prices? Or is a resumption of the longer-term uptrend (that's been in place for two years now against the euro) likely to continue?

According to new forecasts from Lloyds the pound might peak at around 1.46 versus the single currency in Q4 of this year. For 2016 though, they see that trend reversing, forecasting the pound to drop to 1.42 in Q1 of next year, followed by 1.31 in Q2, 1.28 in Q3 and 1.24 in Q4.

Sterling might follow a fairly similar path against the US dollar, although the peak might not come until early 2016. They see the GBP/USD exchange rate at 1.56 by the end of this year, rising to 1.58 in Q1 of 2016. After that, the pound will drop to 1.51 in Q2, 1.47 in Q3 and 1.45 in Q4 of next year, they predict.

They have the first UK interest rate rise pencilled in for Feb 2016, a couple of months after they see the Fed starting to raise rates in the US (forecast at Dec 2015).

Once the interest rate race begins, it is interesting that Lloyds should forecast the pound to begin to decline against the euro (with the ECB widely expected to be one of the last of the big central banks to join the party).

"We still see downside risks for sterling in the medium term, led by concerns about the current account deficit, potential EU referendum uncertainty and more acute fiscal austerity," they said. "In contrast, we believe the euro is structurally undervalued, although further ECB QE is a downside risk," they added.

If they're right then UK grains shouldn't go expecting too much help from a weaker domestic currency until Q2 of next year, with the pound forecast to punch above it's current weight prior to then, although there could be some benefit to be derived after that.

In other news, Russia said that their harvest was now 81.7% complete on 38.4 million ha, producing a crop of 93.2 MMT to date. Wheat accounts for 60.3 MMT of that total (87.1% done) and barley a further 17.3 MMT (off 85.3% of the planned area).

Russia's winter grains plantings for the 2016 harvest are said to be 65.2% complete on 11.2 million ha, which is now 300,000 ha more than this time last year.

Russian analysts SovEcon said that it's currently see "no need for weather concerns to the former Soviet Union's wheat crop at this time."