Is There A Glimmer Of Hope At The End Of The Tunnel?

03/11/15 -- EU grains closed mixed, with the. French markets getting a bit of support from a once again weaker euro.

At the finish, Nov 15 London wheat was down GBP0.35/tonne at GBP113.20/tonne. In Paris, Dec 15 wheat was EUR0.50/tonne higher at EUR180.25/tonne, Nov 15 corn was EUR0.50/tonne lower at EUR160.75/tonne and Feb 16 rapeseed was up EUR2.00/tonne to EUR381.50/tonne.

The vibe that all is not well with newly winter-sown crops in Russia and Ukraine is about the best hope that the bulls have to hang their hats onto at the moment, although they are perhaps mindful that a very similar scenario was present - certainly in Russia at least - a year ago at this time, and they are now ultimately wrapping up a harvest not far below last year's bumper levels.

In southern Russia, spring rains appear to be a more critical final yield determinant than those of the autumn it seems. There is a long way to go yet of course, and anything could happen between now and harvest 2016, although certainly these winter sown crops could have got off to a better start than they have done.

Russian winter grain planting works, mostly wheat, are said to be complete on 15.8 million ha, or 92% of the government's original target. That's down 600,000 ha on this time last year. The Russian Ag Minister says that 25% of what has been sown is in poor condition due to drought.

Few are submitting grain production estimates for 2016/17 at this early stage, although Russian analysts IKAR have released a tentative 96-101 MMT forecast. That's down on production this year, but almost certainly not by far enough to be a game changer at this stage. You'd probably have to knock another 10 MMT or so off those numbers for the market to really sit up and take notice right now.

Total output this year currently stands at 106.4 MMT off 98.4% of the planned area, the Ministry say. That includes 63.8 MMT of wheat and 18.2 MMT of barley, both off 99.8% of the planted area. The ongoing corn harvest is said to be 78.5% complete at 11.0 MMT.

In Ukraine, winter grains (excluding rapeseed) are said to have been planted on 6.27 million ha, some 85% of the government's original forecast. Again most of that is wheat at 87% planted on 5.37 million ha. Only 72% of the expected winter barley area has this far been sown (753k ha).

UkrAgroConsult say that only 27% of Ukraine winter wheat is "good" and that 32% is weak or thinned. The last time things were that bad was winter 2011 (for the 2012 harvest) when wheat was rated slightly better at 30% "good" and production went on to slump 29% year-on-year to 15.76 MMT. Wheat exports were restricted by the government that year, and London feed wheat hit the dizzy heights of GBP225/tonne by Christmas following a similar crop malaise in Russia who's wheat exports weren't banned outright, but were all crammed into the early part of the season.

The Ukraine analysts currently say that wheat production there in 2016 could dive around 30% to only 19 MMT.

Meanwhile winter rapeseed in Ukraine is in the worst condition in at least seven years, with 34% of the crop weak or thinned compared with 18% this time last year. The proportion of the crop rated good is only 29% compared to nearly 47% a year ago. If that wasn't bad enough persistent drought means that only 76% (or 626k ha) of the government's intended area has so far been sown, and we are well past the optimum planting window for rapeseed.

Reading back through all of that now reads a lot more bullish than I expected, but it all comes with the very large caveat of what Mother Nature is going to do in Russia and Ukraine between now and next summer, which of course is one of the great unknowns.

Reduced winter plantings and/or increased levels of failed winter crops potentially means a larger spring sown area, although corn is probably most likely to be the main beneficiary of that, not wheat or rapeseed - followed perhaps by sunflower and soybeans.

In addition to that of course, it looks like winter wheat plantings elsewhere around the globe are likely to be little different for the 2016 harvest than they were for this year. Bumper crops amongst the other major exporting nations like the US, EU, Australia, Canada etc could certainly take some of the sting out of a possible 2016/17 FSU wheat shortage - IF we were to get one.

We must also consider that the current 2015/16 supply and demand equation points to an over-supply situation, and record large carryover stocks heading into next season. Indeed, according to the latest USDA numbers more than 31% of all the wheat grown in all the world this year will still be with us in the form of stocks at the end of the current season. That's rather high - in the case of corn it's "only" 19% for example.

That said, at the end of the 2011/12 season, ie. heading into the last new "deficit year" referred to above, world wheat ending stocks were running at 28% of production - not that drastically below the 31% predicted this year.

There are of course other considerations here as well. Spec money was far more interested in getting involved in the grains sector, and commodities in general, back then and crude oil was of course double the price that it is now.

We also didn't have the WHO telling gullible Joe Public that eating processed meat was as risky as smoking 20 a day in an asbestos-filled arsenic factory. Red meat is also now bad for you don't forget, and it is interesting is it not that they don't seem to differentiate between a nice 8oz grass-fed 28-day aged fillet steak with a glass of wine and a supermarket econo-burger on a super-saver white bap washed down with a can of Coke?