EU Wheat Dragged Higher By US Pre-USDA Short-Covering

09/05/13 - EU grains were mixed in quiet trade for most of the day with many traders absent due to a public holiday in some European countries. A slightly wetter look to the latest US 6-10 day forecast sent CBOT grains higher in afternoon trade, dragging European prices up with it. There was undoubtedly some book squaring and short-covering in CBOT wheat running into tomorrow's USDA WASDE report.

London wheat closed with front month May 13 up EUR0.50/tonne at GBP191.00/tonne and new crop Nov 13 GBP1.35/tonne firmer to GBP183.00/tonne. Paris wheat closed with front month May 13 EUR3.00/tonne higher at EUR245.25/tonne and new crop Nov 13 EUR2.75/tonne better to EUR211.00/tonne.

Everybody is waiting on tomorrow's report, although unfortunately it isn't scheduled for release until  EU markets are getting ready to close, leaving very little time to trade it until Monday morning.

There was no shortage of data prior to that though, with the FAO releasing their latest 2013 cereal production estimates today. They estimated the world wheat crop at 695 MMT this year, some 5.4% up on last year and only slightly less than the record crop of 2011.

Of the leading protagonists only America will a significant drop in production this year, with their crop seen down 9.4% to 56 MMT, with the FAO noting potentially high abandonment rates due to drought and also freeze losses.

Elsewhere though they forecast the EU crop up 5.1% on last year at 138 MMT, although they did note that "the 2013 spring growing period has got off to a slow start in northern and central parts where temperatures have been below the long-term average, with consequent delays in winter crop development and spring planting."

Potentially more importantly, as far as determining prices later in the year is concerned, they see a sharp recovery in Black Sea wheat production this year. The Russian harvest is forecast up 45.9% to 55 MMT, with Kazakhstan's rising 38.8% to 14.3 MMT and Ukraine's seen 25.3% higher at 19.8 MMT.

The FAO also said that the world will produced a record 960 MMT of corn in 2013, led by a sharp recovery in output in the US to 340 MMT. European corn production will rise 18% this year to 65 MMT, they said. From a cereal demand perspective "despite the expected production increases, world cereal utilization is expected to stagnate in 2012/13, constrained by rising grain prices and faltering ethanol demand," they added.

Elsewhere a Bloomberg survey pegged this year's US corn crop even higher, at 359 MMT, which would represent an increase of 31% on last year.

UkrAgroConsult estimated wheat production in Ukraine at 20.2 MMT, up 42% on last year. The barley crop will come in at 7.7 MMT (up 18.5%) and the corn crop at 21.8 MMT (up 16%), they added.

The Commonwealth Bank of Australia said that it was premature to be too alarmed over wheat production prospects Down Under in 2013/14, estimating the crop at 24.9 MMT (the FAO said 24.0 MMT). The USDA currently have 2012/13 production at 22.0 MMT.

Closer to home, Defra said that on farm wheat stocks in England and Wales were 3.5 MMT at the end of February, around 10% down on the same time a year previously. Wheat stocks held in store by ports, merchants and co-ops were 1.2 MMT, roughly the same as in Feb 2012. As a percentage of production the on farm stocks was the equivalent of 28%, up slightly on 27% in 2012.

Late in the day, Brussels said that it had issued 267 TMT of soft wheat export licenses in the past week, bringing the marketing year to date total to 17.14 MMT.