EU Grains Back In The Red As Market Decides USDA Report Offers Little Fundamental Support

13/01/16 -- EU grains finished mostly lower, digesting the USDA reports and finding that there was nothing really there for them. Lower than expected US winter wheat plantings for the 2016 harvest doesn't really make for increased EU exports right now does it, and that's what the market needs. To make matters worse, the USDA actually lowered EU wheat exports this season by 1 MMT, hiking ending stocks to a 10-year high.

At the close of trading, Jan 16 London wheat was down GBP1.25/tonne at GBP109.25/tonne. In Paris, Mar 16 wheat fell EUR2.50/tonne at EUR168.50/tonne, Mar 16 corn was EUR1.75/tonne lower to EUR157.75/tonne and Feb 16 rapeseed dropped EUR1.00/tonne to EUR364.25/tonne.

For London wheat this was the lowest close for a front month since May 20. The May 16 - Nov 16 London wheat spread closed at GBP9.40/tonne tonight, up from GBP7.65/tonne at on New Year's Eve.

That seems to be encouraging growers carrying unsold old crop wheat into believing that they are being "insulated" from market downside, as the new crop premium increases. It is still however a fact that they could have sold Nov 16 on the last day of 2015 for GBP126.15/tonne, and now that's only worth GBP124.00/tonne, which still sounds like a loss not a hedge to me, even if it's not as large as the GBP3.90/tonne deficit selling May 16 tonight instead of having bitten the bullet in Dec 31.

FranceAgriMer cut their forecast for French soft wheat exports within the EU to 7.045 MMT from the 7.485 MMT predicted a month ago and down 11.3% versus 7.94 MMT a year previously.

Exports to non-EU homes were estimated at 18.46 MMT versus 19.1 MMT previously and 5% lower than 19.423 MMT in 2014/15. Ending stocks were raised to 3.178 MMT versus 2.615 MMT a month ago and up 26% on 2.521 MMT a year previously.

So the picture being painted here in Europe is one of struggling exports, and increasing stocks, heading into a 2016/17 season when wheat plantings are on a par with last year (when production went on to be record). We will also likely see a strong rebound in EU corn output next year too, all things being equal.

Ukraine remains a genuine area of concern going forward. The Ag Ministry there peg winter wheat plantings (they don't plant very much wheat in the spring at all) at a tad under 7 million ha, along with 983k ha of winter barley and 655k ha of winter OSR (spring seedings of which are also pretty minimal).

The respected APK Inform Agency say that allowing for fairly minimal winter wheat losses of 5%, then they expect a 2016 harvest no better than 18.6 MMT, a 28% decline year-on-year. Winter barley production could also fall by a similar proportion to 2.3 MMT, and winter OSR slipping 30% to 1.2 MMT. Note that in the case of wheat and OSR this would be almost the entire 2016/17 crop.

Even with production down to these sort of levels though, Ukraine would still typically be an aggressive early season exporter, although in the case of rapeseed a crop this small would all mostly be out of the doors in the bulk of Q1, and certainly well gone by Christmas.

The extra land that would be switched into spring plantings would mainly go towards increased corn, soybean and possibly sunflower production. With the domestic Ukraine hryvnia looking like continuing to depreciate, they would probably still be keen wheat exporters for at least the first 4-5 months of the new season.

The state of play in Russia is a bit more uncertain with regards to 2016/17 crop production. It will be a while yet before we have a better handle on this, and the USDA themselves don't generally update us with WASDE numbers for the season ahead until May. That leaves UK growers a fair few months of sitting in their hands to do just yet if that is their intention.

On a separate note it is reported that Egypt's GASC has finally obtained the necessary letters of credit required to get the three vessels sat waiting to load French wheat off the port of Dunkirk get loaded.