Nogger's Blog

20/10/15 -- EU grains closed mixed, but mostly a touch higher. London wheat was under pressure on a firmer outlook for the pound, which hit 1.55 versus the US dollar today, a level it has only been above for a few says since August.

At close, Nov 15 London wheat was down GBP0.50/tonne to GBP112.50/tonne, Dec 15 Paris wheat was up EUR0.50/tonne at EUR175.50/tonne, Nov 15 Paris corn was EUR2.25/tonne firmer at EUR160.75/tonne, whilst Nov 15 Paris rapeseed was EUR1.25/tonne higher at EUR379.25/tonne.

Sterling strength today stemmed from comments by one member of the Bank of England's MPC that called for UK interest rates to rise sooner, rather than later.

Bank of America Merrill Lynch echoed those comments, saying that the market had pushed back expectations for a UK rate rise too far deep into 2016.

They predicted the euro falling to 0.71 against the pound by the end of the year, from around 0.7350 currently. Barclays are even lower at 0.70 for the EUR/GBP. The Merrill Lynch prediction is the equivalent of a GBP/EUR rate of around 1.4080 and the Barclays one equals around 1.4280. Both banks predict further euro weakness once we get into 2016 too, with 0.69 on the cards on Q1 (circa GBP/EUR at 1.45) and 0.68 thereafter (around 1.47).

The ECB meet tomorrow, and few are ruling out the possibility of them increasing QE, if not at this meeting then at some point over the next few months - something that ECB President Mario Draghi has consistently indicated that he is prepared to do. That puts the eurozone at the back of the queue when it comes to possible interest rate rises.

As mentioned many time s before, that would support Paris wheat relative to it's London counterpart going forward, as it would help the competitiveness of euro-priced wheat on the export market.

BoA Merrill Lynch see the EUR/USD exchange rate falling quite sharply from the current 1.14 area to 1.05 by the end of the year, and Barclays' expectations are even lower at 1.03. Both then see parity on the cards by the end of Q1 in 2016. Again this would support the notion that Paris wheat could firm relative to US prices too.

Although EU wheat exports have begun 2015/16 in less impressive fashion than a year ago, these should start to pick up in the second half of the season anyway. There are already signs that Ukraine have "shot their bolt" on wheat and barley, with corn shipments overtaking both in volume last week for the first time this season.

They should now start to major on corn exports, but with an anticipated crop at least 20% lower this year, then the longevity of these will not be the same as it was in 2014/15. That could leave more homes for EU wheat in the second half of the season.

The Ukraine Ag Ministry yesterday forecast total grain production there this season at 59.5 MMT, down 6.7% on a year ago. Corn production was estimated at 22.9 MMT versus 28.5 MMT a year ago.

One Ukraine Ministry official said that winter wheat plantings there are currently only 81% complete, and that only 45% of the planned winter barley area had been sown so far. Today marks the end of the optimum planting window for winter grains, but this may be extended for another 7-10 days, he said. The Ministry said that Ukraine’s winter wheat area for the 2016 harvest could now fall to 5.5 million ha versus a previous estimate of 6.2 million. The USDA has total wheat plantings for 2015 at 7.0 million ha - note that traditionally very little spring wheat is sown in the country.

On top of that winter rapeseed plantings in Ukraine have only been completed on 74% of the government's forecast, and the recommended last planting day for that crop was a month ago.

At home, Defra said that UK wheat yields averaged a record 8.8 MT/ha this year. They now peg production at 16.17 MMT, a 2.6% decline on a year ago due to a 5.3% cut in planted area.

The see average UK barley yields at an also record 6.6 MT/ha, with production of 7.28 MMT representing a 5.3% increase compared with 2014.

UK OSR yields were said to have averaged 3.6 MT/ha, the same as last year, but production has declined 5.6% due to a lower planted area.