EU Grains Close - Do Currencies Hold The Key To 2016?

18/12/15 -- EU grains closed mostly higher on the day, but still mostly lower for the week when all said and done.

At the finish, Jan 16 London wheat was up GBP1.75/tonne at GBP112.50/tonne, Mar 16 Paris wheat was up EUR1.25/tonne to EUR176.25/tonne, Jan 16 corn was EUR0.75/tonne firmer at EUR159.50/tonne and Feb 16 rapeseed was EUR5.25/tonne higher to EUR373.50/tonne.

For the week that puts London wheat GBP0.20/tonne lower, with Paris wheat unchanged, corn EUR5.00/tonne lower and rapeseed down EUR5.75/tonne.

On the good news front, EU exports are staring to pick up. Brussels announced more than 1 MMT worth of soft wheat export licences this past week - the second week in the last three that these have beat the 1 MMT mark, and with this week's total being the highest of the season so far.

Cumulative soft wheat export licences for the season so far have now reached 11.4 MMT. That's still down 16% on a year ago, but things are certainly moving in the right direction - a week ago we were 22% down and at the beginning of November these were 30% lower year-on-year.

The USDA currently project EU-28 all wheat exports to decline 8.2% in 2015/16.

Looking at the old crop/new crop premiums, there's not a lot of change on a week ago. In London the Jan 16/Nov 16 differential is GBP12.05/tonne tonight, or 10.71%, versus GBP11.55/tonne, or 10.25%, a week ago. In Paris the Jan 16/Dec 16 differential is EUR12.00/tonne, or 6.8%, versus EUR11.75/tonne, or 6.7%, a week ago.

In other news, Ukraine said that it had finally finished it's 2015 grain harvest, bringing in a crop of 61.1 MMT, down 5% from 64.37 MMT a year ago. The corn harvest this year finished up at 23.25 MMT (USDA: 23.00 MMT this year and 28.45 MMT in 2014).

The Russian Ag Ministry said that winter grain plantings there (mostly wheat) had been completed on 16.3 million ha, some 0.5 million below a year ago, and that 1.8 million ha of that had yet to emerge.

FranceAgrMer did not release updated weekly crop condition ratings and/or a progress report today.

A week ago they reported French winter wheat and barley crop conditions at 98% and 97% good to very good as of Nov 30. They had 57% of the French winter wheat crop at the early tillering stage versus 55% a year ago. Winter barley was 77% tillering, also 2 points ahead of a year ago.

Tunisia said that it's 2015 grain harvest had fallen 44%, with wheat output down 40% at 913 TMT, and a barley crop 53% lower at 364 TMT. That could mean total grain imports in 2015/16 rising to around 3.5 MMT, up 20% on last season and 15% above the seasonal average. France will be well positioned to service that increased requirement.

Jordan said that it had bought 100,000 MT of optional origin milling wheat and immediately tendered for a similar volume for Apr/May shipment. Morocco are said to be in the market for 360 TMT of milling wheat and 315 TMT of durum wheat, both of US origin, in an inter-governmental deal between the two countries.

Currency fluctuations will play a large part in where grain prices go in 2016. Now that the Fed have broken ranks and become the first of the major central banks to start increasing interest rates, most pundits have the dollar down to firm in the year ahead - albeit by varying degrees.

Analysts are more split on prospects for the pound and euro across the next 12 moths though - and the further forward you go the more diverse those predictions get.

With the year end looming, Deutsche Bank today became the latest to release their thoughts. They see significant GBP/USD weakness ahead, predicting a fall back to the 1.35-1.40 range in 2016/17. The pound closed the week around 1.49 versus the US dollar for an 8-month low. That's a decline of around 6-9.5% versus tonight's close.

The Deutsche Bank's EUR/USD rate outlook meanwhile has been revised upwards from 0.90 to 0.95 - but still some 12% lower when compared to a close at around 1.08 this evening.

Many other analysts are predicting similar scenarios ahead in 2016 - dollar strength, a weaker pound topped only by an even weaker euro, although the downside for the latter is now being reigned in somewhat.

That would point to wheat prices doing pretty much the same across the next 6 months as they have in the last, with Paris performing the best of the wheat markets - if not exactly setting the world on fire.

Versus the May 2015 lows Paris wheat is currently up by around 13%, with London wheat 6.5% higher and Chicago wheat only 2% firmer.