EU Grains Rise On Russian/Ukraine Uncertainty

21/01/15 -- EU grains closed mostly higher, with reports of increased unrest in eastern Ukraine possibly causing a bit of short-covering and/or encouraging one or two specs back into the market.

The pound was down against both the euro and the US dollar. The minutes from the Bank of England's January meeting showed a unanimous vote to keep interest rates on hold, and hinted at less willingness to consider a rise for some time yet.

At the close, Jan 15 London wheat was up GBP0.55/tonne to GBP126.80/tonne; Mar 15 Paris wheat was up EUR1.25/tonne to EUR197.75/tonne; Mar 15 Paris corn was EUR0.25/tonne higher at EUR157.00/tonne; Feb 15 Paris rapeseed rose EUR0.25/tonne to EUR355.00/tonne.

"A surge in violence in east Ukraine is undermining international hopes that Russia's financial crisis and Western sanctions will force President Vladimir Putin to change policy on the conflict," said a report on Reuters. There is "a growing sense of foreboding" as the as fighting between government forces and the separatists intensifies, they said.

Rusagrotrans trimmed their forecast for Russian grain exports this month from 1.5 MMT to 1.3 MMT, a near 60% decline compared with those in December. Exports during the first half of the month were just 588 TMT, they noted.

The Russian Ag Ministry estimated domestic grain consumption at 72.8 MMT this season, which is around 3 MMT higher than normal, presumably due to increased demand from the feed sector due to the ban on importing various Western food commodities.

Russian wheat consumption this season will total 37.4 MMT, they said. That's 2.4 MMT higher than the USDA currently forecast.

Morgan Stanley estimated Russian inflation at the end of 2015 to be running at 13.7%, which would be higher then the 11.4% that it finished 2014 at. It's also far higher than the Russian Ministry's own official forecast of 7.5%.

Inflation continuing at those levels will not encourage Russian farmers to sell their grain. The government picked up a miserly less than 3,000 MT of grain at today's latest round of purchases for the intervention fund.

Meanwhile, there's continued uncertainty over the health of winter sown crops in both Russia and Ukraine. At the risk of sounding like a broken record, there's also a huge question mark hanging over the ability of farmers in both countries to afford spring inputs.

Russian lending to farmers is reported to be down 22% in rouble terms, despite the alarming devaluation of that currency meaning that it really should be far higher than year ago levels.

In Ukraine, winter grains in the Donetsk region are said to be rated 37% good, 44% satisfactory and 17% weak/thinned - the latter figure being about in line with the national average of 18%. A year ago that figure was 8%.

The Ukraine Ag Ministry said that they'd exported 20.77 MMT or grains so far this season, including 8.5 MMT of wheat, 8.3 MMT of corn and 3.75 MMT of barley.

There's no sign yet of the memorandum due to be issued by the Ministry, detailing exactly what was agreed between them and Ukraine grain exporters at last week's meeting when an "informal" cap on wheat exports was mooted.