Nogger's Blog

10/12/15 -- EU grains were lower for most of the day, but ended mixed. at the end of play.

At the finish, Jan 16 London wheat was down BP0.60/tonne at GBP112.55/tonne, Mar 16 Paris wheat was up EUR0.50/tonne to EUR177.50/tonne, Jan 16 corn was up EUR0.25/tonne at EUR165.00/tonne and Feb 16 rapeseed was EUR3.25/tonne lower to EUR373.75/tonne.

The pound rose against the euro again today following the news that the BoE voted 8-1 to keep UK interest rates on hold at 0.5%. Whilst this 8-1 impasse remains, the chances of an rate increase appear to stay firmly entrenched into 2016.

The USDA didn't really offer us anything new in last night's WASDE report, so we are stuck now wondering where the next piece of serious market-giving direction is going to come from.

What the USDA did underline was a backdrop of very ample global supplies and rising stocks levels, combined with stiff export competition. On the wheat front, US and Europe are seen losing ground in the foreign sales league table, with Canada, Ukraine and Argentina all seeing increased export activity than what was forecast a month ago.

Stocks meanwhile in the US and Europe are building. "Although US export prices are at a 5-year low, they remain mostly uncompetitive beyond traditional markets, resulting in stocks projected at a 6-year high," they said.

"Production in the EU is projected at a record and stocks are at an 8-year high. While EU exports are the second highest ever, intensified competition with Russia and Ukraine is constraining exports. It is likely that exporter prices will remain under downward pressure, but much depends upon the development of the 2016/17 Northern Hemisphere wheat crop," they added.

Highlighting how difficult some parts of Europe are finding it to place this year's record wheat crop (despite the weak euro) FranceAgriMer said yesterday that French soft wheat ending stocks at the end of the current season would total 5.2 MMT, around double the normal level. They also raised their estimate for France's corn ending stocks by 0.5 MMT from a month ago, and increased those for barley by 0.3 MMT.

Looking ahead to production prospects for 2016/17, France is expected to plant even more wheat than it did for this year's ultimate record 41 MMT soft wheat crop - an 80 year high in sown area in fact. UK wheat plantings are estimated around unchanged despite low prices, with the crop offering "the best of a bad bunch" in terms of returns.

That scenario is/has been replicated across the whole of Europe. MDA CropCast today became the latest analyst to forecast plantings for next year's harvest virtually unchanged at 25.2 million ha (versus 25.3 million a year ago).

They see production falling a relatively modest 2.6% next year as yields return to more "normal" levels. That makes for a drop of around 4 MMT in output in Europe next year, although consider also that yesterday's USDA report has that decrease entirely covered, and more, by a more than 5.4 MMT hike in Europe's ending stocks at the end of the current season.

That potentially puts us in a similar, if not even marginally worse, situation entering 2016/17 than we began the current season.

A Reuters report noted that the FranceAgriMer stocks numbers made no provision for a possible drop in feed demand in France due to the current bird flu outbreak, nor a fall in demand from the biofuel sector with Spanish-owned firm Abengoa "teetering on the verge of bankruptcy." The EU bioethanol industry clearly isn't proving to be the savior that cereal growers here had envisaged.

Ukraine said that it's 2015 harvest was nearing completion at 61 MMT, and said that they hoped to see that increase to 100 MMT inside 5 years. Exports could rise from an anticipated 36 MMT this season to 70 MMT inside the same 5-year period, they suggested.