EU Wheat Mixed, Egypt Unrest Promotes Risk-Off Mentality
05/07/13 -- EU grains were mixed but mostly lower to finish the week on Friday, despite surging crude oil values following Egypt's military declaring a state of emergency in the province of Suez. There was some suggestion that they may have said that they couldn't guarantee the safety of vessels passing through the Suez Canal following clashes with supporters of the newly ousted President Morsi.
You might have expected grain prices to move higher on the news, although all it seemed to do was encourage a further "risk off" mentality, just as it did when during the last round of political instability and government overthrows in North Africa.
On the day Jul 13 London wheat went off the board unchanged at a nominal GBP155.75/tonne, and benchmark Nov 13 ended GBP0.45/tonne easier at GBP166.55/tonne. Nov 13 Paris wheat settled EUR2.00/tonne lower at EUR194.75/tonne. For the week, Nov 13 London wheat was GBP1.95/tonne firmer and Nov 13 Paris wheat up one euro.
FranceAgriMer pegged French wheat, winter and spring barley crop conditions unchanged from a week ago at 69%, 68% and 72% good/excellent respectively. Corn good/excellent rose one point to 56%. Planting of the latter is now very late but still ongoing, rising from 96% complete last week to 98% done.
The pound closed below 1.49 against the US dollar. Apart from a brief period in mid-March it hasn't spent any length of time down at that level for three years. It also slumped below 1.16 versus the euro. A sustained period of sterling weakness should support London wheat.
EU soft wheat exports finished 2012/13 at 18.9 MMT, the highest level since 2008/09. Barley exports of over 5 MMT were the best since 2002/03. Competition will be much fiercer in 2013/14 however, with the EU Commission yesterday forecasting EU-28 grain ending stocks rising from 30.4 MMT in the season just ended to 40.1 MMT at the end of the one just begun.
Much of the reason for that is a sharp rebound in production in the Black Sea of course. Ukraine are already rampaging around the market mopping up new crop sales at discount prices. APK Inform forecast the Ukraine grain crop rising from 46.2 MMT to 54.1 MMT this year, with exports increasing 26% to a record 29.2 MMT.
They estimate corn production at 23.9 MMT, with wheat output at 20.5 MMT and a barley crop of 7.1 MMT. Corn exports will therefore climb from 13.5 MMT in 2012/13 to 17.0 MMT, with wheat exports up from 6.8 MMT to 9.2 MMT and barley exports up from 2.1 MMT to 2.5 MMT, they forecast.
Russia meanwhile will harvest a wheat crop of around 51-54 MMT, according to various estimates in the market, versus output of 37.7 MMT last year. APK Inform see wheat exports at 15 MMT, up 38% on 2012/13. The Russian Grain Union forecast total grain exports of "up to 25 MMT including 18 MMT of wheat." The latter figure would be a rise of over 60% on the season just ended.
The Russian Ministry said that the 2013/14 grain harvest currently stands at 10.3 MMT, of which 8.3 MMT is wheat and 1.6 MMT barley. Average wheat yields are said to be up 22% and those for barley up 38% versus this time a year ago.
China was confirmed as a buyer of 120 TMT of US SRW wheat by the USDA today, adding to the 360 TMT of similar it was announced that they'd purchased earlier in the week. They've also bought at least 300 TMT of Australian wheat this week, plus 200-220 TMT of French wheat bought mid-June and were already said to have had over 1.5 MMT of US SRW wheat already on the books for 2013/14 prior to this week's activity.
That's a pretty busy couple of weeks for the Chinese, slithering in under the radar. They are currently forecast by the USDA to only need to import 3.5 MMT of wheat in the whole of 2013/14. Apparently 2013 is Chinese year of the snake, not as appropriate as the rat I'm smelling, but not a bad analogy.