London Wheat Stumbles To 12-Month Low, But Still Outperforms Versus 2011 Lows

06/06/13 -- EU grains closed sharply lower on an outlook for potentially record world wheat and corn production this year, despite weather concerns in the US and one or two other areas.

Jul 13 London wheat finished the day GBP3.50/tonne lower at GBP176.50/tonne, and with Nov 13 ending GBP2.15/tonne down at GBP175.60/tonne. Nov 13 Paris wheat settled EUR1.75/tonne easier at EUR204.25/tonne.

For London wheat this was a fresh 12-month closing low for a front month. Nov 13 Paris wheat finished within a euro of a similar milestone. They are however still significantly higher than the 2011 lows, by 26% in the case of London wheat and by 13.5% across the Channel. Rabobank forecast last week that a return close to the 2011 lows was possible in Q4 of 2013 for both Paris and Chicago wheat (CBOT wheat is currently around 16% up from the 2011 lows) without giving a prediction for London wheat.

Both the Bank of England and the ECB left interest rates and QE on hold today. The pound rose to a near 4-week high against a US dollar under pressure from poor jobs data, and to a more than 2-week high versus the euro, putting particular pressure on London wheat.

The Agricultural Market Information System (AMIS), a G20 initiative, forecast the 2013/14 world wheat crop at a record 702 MMT, up 6.5% on last year and fractionally higher than the USDA's May estimate. They see global corn production this year at 963 MMT, also a record if slightly lower than the USDA's 966 MMT prediction, and up 10.3% on last year. World ending stocks for wheat are seen rising 5.5% to 173 MMT and those for corn forecast up almost 29% to 174 MMT.

Whilst they see the world wheat crop 6.5% higher, consumption is only forecast to increase 1.1% whilst global trade will decrease 2.5% "largely reflecting reduced purchases in Asia and Europe because of higher domestic production," they said.

They didn't issue specific forecasts for individual countries. Separately MDA CropCast forecast similar production increases (albeit with lower numbers for both the 2012/13 and 2013/14 marketing years) with the world wheat crop estimated 7% higher than last year and global corn production up 11.5%, led by a 30% increase in output from the US.

The USDA's FAS in Moscow released a comprehensive set of figures for Russian grain production this year. They said that "conditions for winter grains in the Southern, North Caucasian and Central Federal Districts of Russia are currently very favourable. Also (the) corn planted area is at a record level and spring sowing is progressing smoothly in European Russia (although spring wheat sowing is delayed in Siberia and the Urals)."

The slow progress with spring plantings is seen trimming production slightly from the USDA's official May estimates. Even so the FAS predict a Russian grain crop of 91 MMT this year, up 28%, led by a 40.5% increase in wheat output to 53 MMT. The Russian barley crop is seen rising 21.4% this year to 17.0 MMT and the corn crop by 9.8% to 9 MMT.

They also predicted a rise in wheat exports in 2013/14 of 56% to 17.0 MMT, along with increases of 52% in barley exports to 3.5 MMT and with corn shipments up 25% to 2.5 MMT.

In a separate announcement the Russian government said that they intend to buy 5 MMT of domestic new crop grains to replenish state-owned stocks (they've sold 3.42 MMT of intervention grains since October).

If the US do end up with a record corn crop some 30% up on last year (and apart from the USDA, AMIS, MDA CropCast, Lanworth, Informa, Rabobank and just about anyone else you care to mention are all in the same ballpark) then it's entirely possible that global demand for wheat in 2013/14 will not be as robust as current estimates suggest.

Whilst the USDA currently predict a near record level of demand for wheat in the season ahead (695 MMT versus the 2011/12 record of 697 MMT) it should be considered that in 2011/12 the world corn crop was 83 MMT lower than it is projected to be this season.

This afternoon's weekly export figures from the USDA suggest that US 2012/13 exports have been overestimated to the tune of 2 MMT, adding to the carry-in into the new season. It also makes the USDA target of 25.5 MMT of wheat exports in 2013/14 look ambitious. That's only 0.5 MMT less than they've managed to achieve in a season where Black Sea exports have been reduced to a trickle for six months by caps from Russia/Ukraine and in a season where all the other top ten exporting nations, bar India, are looking at significant production increases.

Jordan bought 100 TMT of optional origin wheat for September shipment today at a price around USD70/tonne below the current US equivalent.