London Wheat And Paris Rapeseed Hit New Highs

13/10/16 -- EU grains closed mostly higher, with London wheat and Paris rapeseed pressing onto new highs for the recent move.

At the finish Nov 16 London wheat was GBP0.85/tonne higher at GBP132.10/tonne, within less than a pound of the best close on a front month since the beginning of January 2015. Dec 16 Paris wheat was up EUR1.75/tonne at EUR161.25/tonne, Nov 16 Paris corn ended EUR0.75/tonne firmer at EUR158.25/tonne and Nov 16 Paris rapeseed was EUR2.75/tonne higher at EUR386.25/tonne - the highest close for a front month since Aug 2015.

At home Defra estimated the UK rapeseed crop at 1.77 MMT, down 30% on 2.54 MMT a year ago. This was due to a combination of reduced plantings and lower yields.

The NFU are even more bearish on production at just 1.7 MMT, a 32.5% decline on a year ago. They said that the harvested area had now dropped for 5 years in a row, and may do the same again in 2017.

The NFU are also more bearish than Defra on wheat production (14.2 MMT vs 14.47 MMT from the Ministry) and barley output (6.6 MMT vs 6.65 MMT).

This season's rapeseed shortage has "has encouraged UK prices to move to a premium to, rather than a discount to, European prices," the HGCA noted yesterday.

"Moving from a net export to a net import position has implications for both UK prices relative to elsewhere in Europe, and for regional prices within the UK (especially for Scottish values relative to English). The former situation is also complicated (and magnified) on the wider scale by the tight EU picture as a whole this year, increasing the need to import from Ukraine, Canada and/or Australia," they said.

This isn't the case for wheat just yet, where the latest figures from Defra show that the balance of wheat availability and domestic consumption this season is 2.75 MMT in the UK in 2016/17, even if this is down more than 50% on a year ago. The UK has however exported 457 TMT of wheat in the first two months of the marketing year, suggesting that home produced supplies could also tighten considerably as the season progresses.

Does this mean that prices are a certainty to move higher? Not necessarily, much of that depends on where the pound is going to go versus the US dollar and euro for the rest of the season. Whilst spec money is lining up to punt the pound from the short side, to me it already looks oversold and ripe for some upside correction.

Short-term though the sterling bears seem to have to momentum in their favour though, making further London wheat appreciation seem likely before we hit any consolidation period.

Across the Channel FranceAgriMer lowered their forecast for the French wheat crop by 0.5 MMT to just 28.0 MMT this year, a 31.5% slump compared to 2015. French exports to non-EU countries were estimated at 6.4 MMT (versus 6.6 MMT previously and 12.6 MMT last season). Exports within the EU were seen at 4.7 MMT (unchanged from last month but down from 7.8 MMT in 2015/16).

They also lowered their estimates for French barley and corn exports this season.

Saudi Arabia tendered for 595 TMT of optional origin hard wheat for Dec/Jan shipment. Jordan were said to have bought 100 TMT of optional origin hard wheat.

Egypt's GASC are back in the market tendering for wheat for 11-20 November shipment.