New Year, But Same Old Story For EU Grains
04/01/16 -- EU grains closed mostly lower on the first trading session of 2016. At the finish, Jan 16 London wheat was down GBP2.15/tonne at GBP111.90/tonne, Mar 16 Paris wheat was EUR2.50/tonne lower at EUR171.00/tonne, Jan 16 corn (which goes off the board tomorrow) was up EUR2.00/tonne at EUR146.50/tonne and Feb 16 rapeseed was EUR3.50/tonne easier to EUR370.50/tonne.
Is London wheat lining up an early shot at taking out the GBP110.00/tonne mark? It looks like it might be. We haven't seen a front month close that low since June (and that was for one night only). Benchmark May 16 also ended the day within a pound of setting a new lifetime contract low.
It's all a bit disconcerting, especially when you consider that for London wheat a front month only closed higher than the closing price of 2014 twice in the whole of last year! And both those occasions were in the first week of last year!
At a glance then, you'd be forgiven for thinking that nothing much has changed. It might be a new year, but the same old concerns ares till being thrown around today.
The FTSE 100, the French CAC and German Dax all traded with losses of 2-4% on the first day back after the holiday. Heightened tensions in the Middle East and the old stalwart of Chinese economic worries both being to the fore today.
At least the former could be a little friendly for crude oil, which may in turn add a little bit of friendliness to the grains, although other weekend reports citing $20/barrel crude at some point in 2016 would not.
The new year also means a plethora of analysts lining up to tell us what they think might happen on the currency front in 2016.
There's been a definite wind of change towards a less bullish outlook for sterling versus the euro going forward. The threat of Brexit could weigh on the pound in 2016. There's also a school of thought that the Bank of England will not be in any sort of a rush to follow in the footsteps of the Fed and increase interest rates sometime soon either.
Most are now predicting a modest first UK interest rate rise in Q2 of 2016 at the earliest, and possibly it being pushed back towards the end of Q3. If and when a rate rise does come, it's also only likely to be of a quarter of a point.
The implications for London wheat are that maybe a weaker sterling/stronger euro outlook for 2016 could provide some sort of an element of support for UK grain - at least relative to what had been expected.
We are unlikely however to be talking about a significant and wholesale appreciation of the GBP/EUR, thus support for London wheat could be somewhat muted.
Exports from the Black Sea region remain fierce, both the Ukraine and Russian currencies are far weaker than anything we might be contemplating for the pound right now.
Ukraine said that they'd exported 21.2 MMT of grains (Jul 1 to Dec 30), off which wheat accounted for 10.4 MMT, barley 3.9 MMT and corn 6.8 MMT.
Russia said that they'd exported a little less, 20.5 MMT, and 2% below the level shipped out in the same period a year ago (and also a touch less than the record 21.1 MMT forecast by Rusagrotrans). That included 15.35 MMT of wheat, 3.21 MMT of barley and 1.77 MMT of corn.
