EU Grains Lower Ahead Of Fed Rate Decision

17/09/15 -- EU grains trade mostly lower, as the world sits and waits to see if America will be first big player to start raising global interest rates. It's 9 years since the Fed last increased interest rates, and they've been stuck at virtually zero since just after Lehman Brothers collapsed in late 2008.

At the close Nov 15 London wheat was down GBP1.70/tonne at GBP110.50/tonne, equaling the lowest close on a front month since Jun 23. In Paris, Nov 15 wheat closed EUR1.25/tonne lower at EUR167.00tonne, Nov 15 corn was down EUR2.25/tonne to EUR162.50/tonne and Nov 15 rapeseed was EUR3.75/tonne easier at EUR363.00/tonne.

We aren't due to get the Fed's decision until after the US markets close tonight at around 19.00 London time, and an interest rates hike is far from certain. In fact the market is saying that there's about a 32% chance they they will decide to move this month, according to Bloomberg. The "favourite" is December, with a 43.9% chance.

If they do decide to increase rates tonight, the that probably increases the chances that the BoE will follow suit here sooner rather than later. That would mean a firmer US dollar in the morning, with the pound also probably gaining versus the euro at least.

Back to the grain market fundamentals, Strategie Grains have lowered their forecast for the EU-28 corn crop for the third month in a row today. They now see that at 57.4 MMT, down 2.3 MMT from last month and 24% below last year's record harvest. That's no giant shock, although their figure is now 0.6 MMT lower than the one released by the USDA last Friday.

It's a different story for wheat and barley though. The French analysts now see the EU-28 soft wheat crop at 147.5 MMT, up 3.5 MMT from last month and now only 1% below last season's record harvest. EU-28 soft wheat exports were raised 0.2 MMT to 26.8 MMT, which is 13% down on the 2014/15 record. World soft wheat trade was raised 3 MMT from their last report to 132.3 MMT, which is 1.5 MMT lower than last season.

They also increased their outlook on the EU-28 barley crop by 1.6 MMT from a month ago to 60.4 MMT, now essentially unchanged with a year ago.

The trade is starting to believe that both Russia and Ukraine have defied the odds and come up with another bumper, and possibly even record grain crop this year.

MDA CropCast today raised their estimates for this year's Russian wheat and barley harvests by 2.15 MMT and 2.62 MMT respectively. They now see the 2015 Russian wheat crop at 60.2 MMT, and have barley output at 19.3 MMT.

In Ukraine, they've increased this year's wheat crop by 1.38 MMT to 25.9 MMT, and upped barley by 0.86 MMT to 8.4 MMT.

The Russians themselves say that this year's wheat harvest is now 78.4% complete on 21.1 million ha producing a crop of 56.3 MMT so far. SovEcon predict final output at 61 MMT, which is in line with what the USDA raised their estimate to on Friday.

The issue of "will they, won't they" with regards to the current Russian export tax on wheat continues. It seems likely that the government will raise the ceiling at which the other than token RUB50/tonne duty kicks in from the existing RUB11,000/tonne (around USD167/tonne at current exchange rates) at some point, but the mechanism currently in place is a complicated one.

The tax is levied on the value of the goods when they are shipped, not when they are sold, making a simple currency hedge impossible. Whether that part of the system changes remains to be seen.

Rusagrotrans today estimated Russia's September grain exports at 3.5 MMT, including 2.85 MMT of wheat. That's considerably less than the record 4.7 MMT of grain likely to get exported this month that the Russian Grain Union leader predicted just yesterday.

With the UK wheat harvest now winding down, domestic stores are groaning under the sheer volume kicking around. The situation is exacerbated by the unusually large amount of carryover left from the 2014 harvest.

Most farmers are delighted with the yields they've achieved this year, and in many of cases it's being whispered that these have achieved record levels for wheat, barley AND rapeseed on some farms.

Merchants needing to sell must price their product accordingly, with feed wheat reportedly trading at just GBP106/tonne FOB the East Coast for October shipment in the last couple of days.