EU Grains Mostly Lower Following Surprise Bout Of Euro Strength
03/12/15 -- EU grains traded mixed mid-morning with only small movements in either direction in evidence ahead of a much-awaited ECB announcement on interest rates and QE in the eurozone.
The ECB did take action, although it perhaps wasn't quite as drastic as the market was expecting, cutting the overnight deposit rate from -0.2% to -0.3% and extending QE stimulus by six months. They left their main interest rate unchanged at a record low of 0.05% as was widely anticipated. This sparked a euro rally, which then completely took away what little wind had been billowing in the sails of Paris grains.
At the close, Jan 16 London wheat was up GBP0.15/tonne at GBP112.90/tonne. In Paris, Dec 15 wheat was down EUR2.75/tonne to EUR174.00/tonne, Jan 16 corn was EUR0.25/tonne higher at EUR165.00/tonne and Feb 16 rapeseed had fallen EUR0.75/tonne to EUR384.00/tonne.
The ECB announcement saw the euro rise sharply against both the US dollar (to almost 1.09) and sterling (close to 1.38), and the latter also rose back above 1.50 against the greenback this afternoon too. Market focus now turns to the US non-farm payrolls report out tomorrow, the last one before the decisive December Fed meeting at which many were expecting the US central bank to become the first of the majors to start nudging interest rates higher.
Does today's mini-ECB surprise mark a turning point for the single currency? Probably not, much rather an opportunity to book profits just in case the Fed also end up over-promising and under-delivering this month.
Deutsche Bank said that a wave of Eurozone capital outflows would see the euro weaken to below parity with the US dollar in 2016 (a view commonly held by many other high-profile analysts), before potentially tumbling as low as 0.85 by the end of 2017.
The FAO cut their forecast for the 2015/16 global wheat crop by 1 MMT from a month ago to 735 MMT, mainly due to lower anticipated production in Brazil and Argentina. They were unchanged on world wheat ending stocks at 207 MMT - the highest since 2001/02. "The expansion largely reflects an anticipated build-up of inventories in the EU and the US," they said.
Looking ahead to 2016. "Conditions in the northern hemisphere are generally favourable at this early stage of the season. In the EU, conditions improved owing to beneficial weather. In Russia and Ukraine, conditions have improved although some concern over establishment remains," they noted.
In Ukraine specifically, "concern remains over winter wheat in the southern and eastern regions due to dryness, which has led to a decrease in planted area and some concerns over establishment conditions. However, conditions are favourable throughout the rest of the country," they added.
The Ukraine HydroMet Centre said that decent rains in the third week of November had replenished depleted soil moisture reserves.
Lanworth said that there's still everything to play for in Ukraine, despite winter plantings being around 10% below expectations. Improved weather conditions, should they get them, across the remainder of the winter and the spring could still boost final yields and ultimately see 2016 production levels rebound from current low expectations, they suggested.
The same could also prove to be true in Russia, where winter grains plantings have managed to reach a little over 95% of the original government forecast. "Winter wheat planting (in Russia) is almost complete. Agro-meteorological conditions for the start of wintering are generally satisfactory and in the southern regions moisture conditions have somewhat improved relative to last month," said the FAO.
Russia says that sanctions against Turkey won't be extended to include grains, but traders aren't taking that as gospel. Russian wheat prices on the Azov Sea have fallen around $5/tonne on an FOB basis following last week's downing of a Russian jet that had allegedly strayed slightly into Turkish airspace, as sellers there look for new buyers.
There seem to be plenty of willing sellers keen to step into Russia's shoes to supply Turkish needs, although the quality of what is on offer may not be quite as good as Russian material.
