EU Grains Directionless - But Does New Crop Pricing Offer An Opportunity?

Posted by Nogger - a legend in his own mind at 18:24 | Categorized as

18/11/15 -- It was another quiet and relatively directionless day for the EU grains market. London wheat is managing to just about hold above GBP110.00/tonne, and Paris wheat doing likewise a touch better than EUR175.00/tonne.

At the close, Nov 15 London wheat was down GBP0.05/tonne at GBP111.55/tonne, Dec 15 Paris wheat was up EUR1.25/tonne at EUR176.50/tonne, Jan 16 Paris corn was EUR0.75/tonne weaker at EUR166.75/tonne, whilst Feb 16 Paris rapeseed fell EUR0.75/tonne to EUR376.25/tonne.

Forecast record world wheat, corn and soybean stocks at the end of 2015/16 hardly read bullish. The IGC will update us with their forecasts for these tomorrow, which might yet provide the market with another kick lower.

The French Ministry estimate the 2015 wheat crop there at just under 41 MMT, a new record and 9% higher than that of a year ago, helped by better yields and increased plantings.

The French barley crop is seen 6% higher at 12.43 MMT, but corn production will drop 27% to 13.39 MMT, they added.

Russia's corn harvest is now said to be 86.9% complete at 12.2 MMT, with yields this year averaging 5.15 MT/ha versus 4.54 MT/ha a year ago.

Russian winter planting works for the 2016 harvest are said to be finished on 16.3 million ha, slightly more than 95% of the anticipated Ag Ministry forecast and 400k ha less than had been planted this time a year ago. Nevertheless, a reasonably favourable weather outlook for the next couple of weeks means that the Ag Minister still sees final plantings reaching 17.1 million ha.

Russia's grain exports so far this calendar year (Jan 1 - Nov 13) are 29.89 MMT, including 17.99 MMT of wheat. Marketing year grain exports (Jul 1 2015 to Jun 30 2016) are seen reaching 30 MMT. Exports might reach 35-40 MMT by 2020, according to the Russian Ag Minister.

Israel are tendering for 80,000 MT of optional origin corn and 30,000 MT of optional origin feed wheat for Jan/Feb shipment. Jordan are in the market for 100,000 MT each of optional origin wheat and barley or Feb-Apr shipment.

Nov 16 London wheat continues to offer a premium of around GBP14.00/tonne to the nearby old crop Nov 15 contract, and the far forward Nov 17 adds a further GBP7.00/tonne or so, for an overall additional GBP21/tonne extra compared to the current front month.

Do these differentials provide something of an opportunity in a market that seems almost devoid of any if you are a UK cereal grower?

One thing worth noting is that back on Jul 1, the first day of the 2015/16 marketing year, the premium on offer for Nov 16 was only GBP3.95/tonne. Nov 17 didn't trade until Jul 8 this year, but when it did that contract was only paying a GBP7.40/tonne premium to Nov 15.

Both these differentials have therefore widened considerably in the last 4 months. In fact the Nov 15-Nov 16 spread is 350% (based on tonight's close) of what it was as recently as Jul 1, and the Nov 15-Nov 17 spread has increased to more than 280% of what was on offer on Jul 8.