Nogger's Blog

22/12/15 -- EU grains closed mixed. London wheat fared better than it's French counterpart as the pound slipped to 1.35 versus the single currency - it hasn't closed lower than that level more than a few times since February. Sterling also seems to be ending 2015 on a low note against the US dollar, against which it currently looks like ending the day at it's lowest since April.

At the finish, Jan 16 London wheat was up GBP0.75/tonne at GBP112.75/tonne, Mar 16 Paris wheat was EUR0.75/tonne lower at EUR174.00/tonne, Jan 16 Paris corn was down EUR2.00/tonne at EUR158.75/tonne, whilst Feb 16 Paris rapeseed was EUR1.25/tonne lower EUR374.25/tonne.

Data showing that the UK public sector borrowed more than expected in November stung the pound, just as Germany consumer confidence came in above market expactations. Some, although certainly not all, market analysts are talking of a wind of change ahead in the currency markets in 2016 - with the euro possibly not set to remain the international forex "whipping boy" for too much longer.

That's not to say that it's position will be replaced by the pound at all, there are still plenty of pundits out there calling for a GBP/EUR exchange rate in the 1.40-1.45 region in the first half of next year. However, year-end is looming, and some players may be taking some money off the table and banking a few profits - the pound has (until recently) been in a more or less upwards trajectory against the single currency for 2 1/2 years now. Having closed below 1.15 on the last day of July 2013 it had appreciated more than 25% by the time of it's 1.44 peak in July of this year.

Sticking with currencies for a little while longer, the Russian rouble hit a fresh all-time low of 72 versus the US dollar today. Weakness in crude oil is one of the ongoing factors behind the rouble's demise, along with continued tensions/sanctions with the West. The currency has now weakened to the extent that the "floating" export duty on wheat, which was raised not too long ago to be nothing more than a token amount, has now kicked in again to something a bit more significant.

Following Argentina's recent change of leadership, Russia is now the only major international seller who currently has a wheat export tax in place, leading to calls for it's removal from various leading Russian traders and analysts.

Russia's complicated on-off export duty, which was in place at the start of the season, appeared to hinder the pace of what sales during the first part of 2015/16, before the ceiling at which more than a token level was introduced was increased a couple of months ago.

That meant that Russia's Q1 (Jul/Sep) grain exports were officially 9.78 MMT, a 15.2% decrease compared to the same period a year ago. By Dec 9, these were only down 6% versus the same period in 2014.

Of course we can never be 100% sure that what the official Russian Ministry numbers say are indeed to whole truth. Respected Russian analysts SovEcon tell the HGCA that Russia's Jul/Nov actual wheat exports were probably around 1 MMT higher than the official Ministry numbers suggest, and that final exports this season could even beat last season's record 21.6 MMT total.

Whilst Russia would therefore seem to be exporting considerable, and maybe even record or at least near to record, volumes of wheat/grains now, it also of course potentially means lower carryover at the end of the season heading into 2016/17. Whilst concerns remain over crop prospects for next season, that could shed a rather more bullish tone on things 6 months from now when we have a much clearer idea about final production prospects in 2016.

The weak rouble will also of course mean increased input costs, potentially meaning increased use of lower quality seed and reduced levels of fertiliser/agrochemicals. It needs also to be remembered though that these are some of the exact same issue being debated a year ago - and things largely seem to have turned out pretty well despite these concerns. For now all we have to go on, much as we did back then, is the usual early doors Ag Ministry forecast for grain production of or around this season's levels.

Somewhere where the alarm bells are already ringing a little louder is next door in Ukraine. French analysts Agritel, who have offices in Ukraine, and following a recent crop tour of the country say that wheat production there could fall 30% 24.55 MMT to 17.2 MMT next year.

Late summer/autumn/early winter drought cut wheat plantings, meaning that the 2016 harvested are might fall to around 4.65 million ha, down 21% decline compared to this year, and the lowest acreage in the last 10 years. They also see average yields falling to 3.70 MT/ha from 3.85 MT/ha this year.

At this stage that takes production down to 17.2 MMT in a medium case scenario, with a current best case of 18.1 MMT and a worst case of 16.4 MMT, they say. Production in 2014 was seen at around 24.55 MMT, so if the worst case scenario proves to be right then a production fall of 33% compared with this year could be on the cards.