EU Grains Mostly Higher, Weak Pound Helps London Wheat

17/08/16 -- EU grains finished mostly higher on the day. Sterling weakness continues to provide support for London wheat, indeed the majority of the recent gains can be attributed to post-Brexit currency weakness rather than anything else.

The day ended with Nov 16 London up GBP1.05/tonne at GBP132.70/tonne, Sep 16 Paris wheat was unchanged at EUR163.25/tonne, Aug corn was down EUR0.25/tonne at EUR166.25/tonne and Nov 16 rapeseed jumped EUR6.25/tonne to EUR379.75/tonne.

The other developing storyline in the grains market is one of significantly lower EU production this year matched by sharply higher FSU output.

In theory one simply balances out the other. If you're Egypt and want wheat you simply pick up the phone to Russia (or Ukraine) and hang up on France for the next 12 months.

Or is it really as simple as that? Has Russia/Ukraine got the quality that you want? Can they guarantee to supply it exactly when you want, what about Dec 20-31 for example? They could be under 6 foot of snow by then.

Moreover, if the quality you are getting from them now is OK, what's it going to be like come the spring? Neither country is after all renowned for their prime quality storage facilities. What will their wheat be like come, say March, especially in a bumper production year such as this one?

The President of the Russian Grain Union today estimated the 2016 harvest at 114-118 MMT, including 69.5 MMT of wheat and ending stocks of 16 MMT. He went on to highlight the lack of adequate storage and Russia's ability to efficiently handle such a crop.

The President of Rusagrotrans raised his estimate for this year's grain harvest from 115.8-116 MMT to 118.5 MMT (with wheat upped from 70-71 MMT to 72-73 MMT) and barley increased from 18.3 MMT to 19.5 MMT.

This will be the best harvest since 1978, he said (up 13% from 104.8 MMT in 2015). Yet, August exports are only forecast at 3.5 MMT versus 4.2 MMT a year ago, partly due to grower disenchantment with current low prices.

The Ukraine Ag Ministry estimated 2016 grain production at 63 MMT, up 5% on last year, including 26 MMT of corn.

The EU trade seems to currently be thinking that there will be buyers for this season's reduced export availability, and that having Ukraine/Russia as a seller won't suit everyone. We shall see....