EU Grains Mostly Higher, But Starting To Look Rangebound

22/01/15 -- EU grains traded mixed, but mostly a little higher, as they are starting to develop a sideways look to them.

Front month Paris wheat hasn't closed outside the EUR190-200/tonne range so far this year, whilst Jan 15 London wheat has been stuck in the GBP125-135/tonne for the same period. Paris corn seems content to trade in the range of EUR155-165/tonne and Paris rapeseed hasn't been outside the EUR354-364/tonne area since the opening day of the year.

At the close Jan 15 London wheat was down GBP0.05/tonne at GBP126.75/tonne, Mar 15 Paris wheat was EUR0.25/tonne higher at EUR198.00/tonne, Mar 15 Paris corn was EUR1.25/tonne higher at EUR158.25/tonne and Feb 15 Paris rapeseed was up EUR0.25/tonne to EUR355.25/tonne.

Something surely has to give, but what? For the bulls, Russia and Ukraine surely hold the key?

Russia now has more than 9,000 soldiers and 500 tanks, heavy artillery and armoured personnel carriers in eastern Ukraine, the latter's President says, according to a report on the BBC today.

A report on Reuters meanwhile yesterday suggested that Russia's President Putin will settle for the autonomy from Kiev, but within Ukraine's borders, of the rebel-held Donetsk and Luhansk regions - but nothing less.

Relations between Russia and the West are getting sensitive again. That won't help the Russian rouble, or the country's inflation rate - now running at 11.9%, up from 11.4% at the end of 2014, and moving rapidly higher. Food inflation is already said to be at 16%.

This is one of the main reasons that Russian farmers are content to sit on what remaining grain stocks they have, rather than sell them to the government's intervention programme - this is the nearest thing they've got to dollars right now.

On top of that, crop prospects for 2015 in some parts aren't looking good at all due to "extreme temperatures and lack of snow early in the winter". In the Volgograd region, of the 1.3 million hectares of winter grains that have been planted, only 18% are said to be in good condition, with 42% classed as "satisfactory" and 40% in a "poor" state.

Russian growers' ability to be able to fund a spring replanting and inputs purchasing programme must be called into question given their lack of access to credit and rapidly rising inflation, combined with the hefty decline in value of the rouble.

Back in Ukraine again, the President of their Agrarian Union said that the cost of sowing spring crops there in 2015 would be around 40-50% up on a year ago. Local Ammonium Nitrate prices have doubled in the last 12 months, and diesel prices have risen 60%, he said.

These guys are also going to find it very tough to fund the purchase of their inputs this year then it would seem.

Whilst the global market isn't oblivious to these developments, its reaction is strangely subdued.

The bears are pointing to economic slowdown in China, the alarming slump in crude oil prices, potentially record world soybean production (and ending stocks) this year, and fickle fund money getting out of commodities and saying that the worst isn't over yet.

The ECB meanwhile announced no move on interest rates in the eurozone, and that they are to unleash more than EUR1 trillion in quantitative easing, pumping EUR60 a month into a bond-buying programme. The euro sunk to a new 7 year low of 1.32 against the pound following the news.