28 February 2015 | Online since 2003



Turnaround in wheat market after 4-year lows?


EU grains closed mostly higher on nervousness over a build up of Russian troops on the Ukraine border and continued reports of quality issues with the ongoing 2014 European wheat harvest.

The day ended with new crop Nov 14 London wheat closing GBP2.50/tonne higher at GBP126.00/tonne, Nov 14 Paris wheat was EUR3.50/tonne firmer at EUR178.25/tonne, Nov 14 Paris corn was up EUR1.25/tonne to EUR155.25/tonne and Nov 14 Paris rapeseed was unchanged at EUR325.75/tonne.

Is this the start of a turnaround in the wheat market from the recent slump to 4-year lows? It certainly could be as far as milling wheat is concerned, as there looks like being a shortage of that across parts of Europe this year, judging by reports coming out of France and Germany. The market is still awaiting clarification on the quality specification that will be accepted against the Paris milling wheat contract this year. Regardless of what will ultimately prove to be acceptable, milling wheat premiums of the standard demanded by the flour millers could ultimately rise.

Shorts will be nervously keeping an eye on developments in Ukraine, with Russian troops said to be increasing their numbers on the border. Chicago wheat jumped 30% between late January and the first week of May following the Russian taking of Crimea. What would it have done if it had been known that there was also a serious lack of quality in European wheat at the time?

That doesn't necessarily mean that London feed wheat should be in for a rally too though. What isn't French or German or Polish milling wheat is ultimately extra feed wheat overflowing out of the grain bin of despair.

As far as feed wheat goes, we now need to keep an eye on new crop corn. Informa yesterday said that the 2014 EU corn crop would come in at 67.8 MMT versus a previous estimate of 66.4 MMT. That's more than 2 MMT above the USDA's current estimate.

The progress of the Ukraine corn crop also warrants keeping an eye on. The Ag Ministry there said yesterday that the current dry weather may "significantly" reduce the Ukrainian corn yields. There's also the question of will everything that's been planted get harvested, particularly in the east of the country?

The Polish Prime Minister today said that the threat of a direct intervention by Russia's military in Ukraine has risen over the last couple of days, according to a report on Reuters. Nato said that it was concerned that Russia would use "the pretext of a humanitarian or peace-keeping mission as an excuse to send troops into Eastern Ukraine".

The Ukraine Ag Ministry said that the country had harvested 31.2 MMT of early grains (excluding corn) to date off 8.824 million hectares, or around 90% of plan. That includes 21.553 MMT of wheat and 8.632 MMT of barley. APK Inform said that the country would harvest 57.4 MMT of grain, including corn, this year - unchanged from their previous forecast. Some fields remain unharvested in the Donetsk and Lugansk regions due to "military operations" they said.

They'd also harvested 2.052 MMT of OSR as of the same date. UkrAgroConsult forecast Ukraine's rapeseed exports falling 17% to 1.85 MMT in 2014/15.

The ongoing turmoil in Ukraine, and the latest round of Western sanctions imposed on Russian banks, see the Ukraine hryvna down by 4.4% and the Russian rouble 3.8% lower versus the US dollar in the past fortnight. The hryvna has lost almost a third of it's value against the US dollar since the beginning of the year.

Low prices, continuing conflict, lack of credit and higher input costs due to weak domestic currencies will have farmers in both countries scratching their heads with regards to 2015 cropping plans.

Current heat and dryness may have speeded up the wheat harvest in the region, but it won't be helping later crops such as corn, soybeans and sunflowers. It could also further reduce/harm the planting of winter crops later in the year.

Still, Russian sellers remain aggressive, actively searching for nearby business as they want dollars and they want them now, with 12.5% milling wheat offers FOB the Black Sea said to be around the $245/tonne level (circa GBP146/tonne), and with feed wheat FOB Azov/Rostov as cheap as $170/tonne FOB (circa just GBP101/tonne). Ukraine new crop corn offers are around $187-189/tonne (circa GBP112/tonne).

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