EU Grains Rise On Follow Through Trade, But It Didn't Last

07/10/15 -- EU grains traded mostly higher for much of the day, with support coming from yesterday's wheat advances States-side, which followed through into morning trade today.

For London and Paris wheat and rapeseed these were the best levels seen on a front month since mid-August. The six million dollar question was does this mean that the harvest lows are in?

Only time will tell, but we may get a few more clues from the USDA in Friday's upcoming WASDE report. That is expected to revise US corn and soybean production lower than the estimates given last month, largely on the back of lower harvest acreage numbers than those used in September.

By the close however, Nov 15 London wheat was down GBP2.30/tonne to GBP114.50/tonne, Dec 15 Paris wheat was EUR1.00/tonne lower at EUR178.25/tonne, Nov 15 Paris corn was EUR0.25/tonne easier at EUR165.75/tonne, whilst Nov 15 Paris rapeseed was EUR0.75/tonne steadier at EUR376.50/tonne.

Paris grains got a boost today from a weaker euro, following the news that German industrial production unexpectedly fell in August, where growth had been expected. London wheat didn't derive the same benefit however. UK industrial production in contrast rose 0.5% compared to an average analyst forecast of 0.3%, sending the pound higher against both the euro and US dollar.

It seems that the UK is better insulated against the fallout of a Chinese economic slowdown than Europe. Ideas now are that further problems for the Eurozone economy might lead the ECB to consider even more QE, putting any potential interest rate rise there even further onto the back burner than it already was.

Modest and gradual interest rate rises from the BoE here are still being pencilled in for Q1 or Q2 of 2016. Barclays have sterling appreciating from the current level of around 1.36 against the euro to 1.43 by the turn of the year, and rising further to 1.45 in Q1 and 1.47 in Q2 of next year.

That would seem to be more supportive for Paris wheat going forward than the London market. Paris wheat currently stands more than 22% above the post-harvest lows set in September. Chicago wheat is up 16% whilst London wheat is only up by less than 7% during in this time.

Another bumper UK harvest this year, and the unusually large volume of carryover stocks left from last season, mean that the UK is likely to need to increase wheat exports significantly in 2015/16. Strong competition from the Black Sea and Baltic nations, as well as France and other EU countries, mean that exports thus far have got off to only a sluggish start, and further sterling appreciation won't help those ambitions.

Russian/Ukraine dryness continues to attract lots of interest/comment. Ukraine's corn crop seems to be bearing the brunt of that, with production barely on target to make a 20 MMT crop this year versus the USDA's current 27 MMT prediction. That will surely be revised downwards on Friday?

Attention is now staring to focus on winter plantings, and prospects (or otherwise) for these crops to get established before the onset of the harsh FSU winter. Agritel say that Ukraine winter seedings are around 50% complete, with those in Russia about 70% done. The first frosts of the season are now staring to emerge, but some rain is in the forecast for the next 2 weeks. The GFS model doesn't currently have coverage being too widespread, but the CMC model looks much wetter over a much wider area of Southern Russia and most of Ukraine.

If the latter forecast verifies then winter plantings could yet reach record levels in the region, Agritel say.

On the international tender front, Algeria are in the market for 50,000 MT of optional origin milling wheat for Nov/Dec shipment. They would usually buy more than the tender volume, and France would be expected to be well positioned to service their requirements. Israel are also in the market for 80,000 MT of corn and 55,000 MT of feed wheat, both of optional origin, for Nov/Jan shipment. The Black Sea might be the favourite to win that business.