Nogger's Blog

24/12/15 -- EU grains finished a predictably subdued holiday-shortened trading session with little change.

At the close of trading, Jan 16 London wheat was down GBP0.30/tonne at GBP112.45/tonne. In Paris, Mar 16 wheat was up EUR0.50/tonne at EUR174.00/tonne, Jan 16 corn fell EUR0.50/tonne to EUR150.50/tonne and Feb 16 rapeseed rose EUR0.25/tonne to EUR374.75/tonne.

For the short week, London wheat ended virtually unchanged from last Friday, with Paris wheat down EUR2.25/tonne, corn shedding EUR9.00/tonne and rapeseed adding EUR0.75/tonne.

Fresh news was understandably thin on the ground today. Yesterday's victory for Argentine wheat in Egypt's latest tender was certainly news of merit this week, particularly the magnitude of difference compared what was put up from them compared to "local favourites" France and Russia - around $12.50-17.50/tonne cheaper on an FOB basis.

"These developments are likely to give ammunition to lobbyists in Russia calling for the removal of the export tax. With changes in the Argentine market, Russia is the only mainstream exporter with export taxes in place so we should expect the duty to be reduced or set to zero if Russia is to meet its own export targets. The market clearly sees this as bearish, but before we know it we’ll be back into a weather market, particularly given the minimal amount of snow cover for many winter wheat crops," said the HGCA's Jack Watts.

The recent weakness of the Argentine peso is also a factor, and one that highlights the fact that currency considerations are likely to have a significant impact on grain prices in 2016.

It is interesting therefore, and offers maybe a small crumb of comfort to UK growers, to see major analysts revising down their forecasts for STG/EUR strength over the coming months.

News this week that the UK economy grew by 0.4% in the third quarter of the year seemingly adds to the case deferring a possible UK interest rate rise early in 2016.

Barclays yesterday became the latest analyst to pare back their forecast on the outlook for the pound versus the euro. They were pretty bullish on sterling a month or two back, estimating a GBP/EUR peak of around 1.47 by Q3 of 2016. They're now saying only 1.37 in Q1 and 1.38 in Q2 of next year.

As far as the GBP/USD trajectory goes, they are now forecasting 1.47 in Q1 and 1.43 in Q2. For the EUR/USD they are considerably less bearish than they were, with latest ideas of 1.07 in Q1 and 1.03 in Q2 far better than thoughts of parity and 0.98 just a month ago.

All of that could mean that he case for London wheat is not quite so bearish compared to the market in Paris as it seemed a month or two back. Only time will tell, although UK exports have improved they certainly aren't pulling up too many trees right now.

UK growers then are faced with a similar set of circumstances to those they faced 12 months ago - albeit that they've probably now got even more old crop sat unsold around them than they did back then.

The good old forward carry isn't putting too much pressure on those that can afford, and have the space to do so, to carry old crop into new. There's around a GBP12.50/tonne premium on offer tonight to sell Nov 15 over Jan 15 - around a pound more than was on the table a fortnight ago and in fact better than the GBP9.15/tonne carrot that was dangling there last Christmas Eve.

The almost 2 year Jan 15 - Nov 16 premium a year ago was incidentally GBP12.75/tonne and tonight the differential on offer to carry front month Jan 16 wheat all the way through the next crop year and into Nov 17 is GBP18.60/tonne.

At the end of the day they are pretty hefty premiums, and ones that are worth possibly pondering over during the festive break.