January 11, 2011

EU wheat-export decline signals tightening supplies

A two-week slowdown in EU wheat exports indicates that grain from the 27-nation union is becoming less competitive in world markets amid higher local prices as supplies shrink.

The EU licensed 72,000 tonnes of soft wheat for export in the latest week, figures showed on January 6, and the least since January 2008. That was a 62% plunge from the prior week, when licenses slid 41%. Export licenses in all of December were less than the record 1.03 million tonnes for a single week in September.

Wheat more than doubled in the past 12 months in Paris trading, exceeding the 36 % increase in Chicago prices. March-delivery wheat closed at the equivalent of US$323.88 a tonne on NYSE Liffe in the French capital on January 7, compared with US$285.59 recently for the grain on the Chicago Board of Trade.

"It's price-rationing," Alexandre Marie, a wheat analyst at Bourges, France-based farm adviser Offre et Demande Agricole, said of the slowdown via phone on January 7. "We don't have a lot of wheat left; we have problems supplying the European market, so we have to slow down exports."

Egypt, the world's largest wheat importer, opted for US and Argentine grain at a tender on December 28 after buying from France twice earlier in the month. Paris-traded wheat climbed 6.1% between the latest purchase and the prior tender on December 15, more than the 4.4% gain in Chicago.

Comparative prices "have been clearly indicating to major purchasers of European wheat that they should start looking elsewhere," Alex Bos, an analyst at Macquarie Bank in London, said via phone on January 7.

France may start to run down its shippable surplus of wheat by the end of March, crops office FranceAgriMer said last month. French soft-wheat exports outside the EU will rise to a record 11.6 million tonnes in the current 2010 to 2011 crop year from 9.8 million tonnes in the prior period, it said.

The country is forecast to be the world's second-largest wheat exporter in the crop year behind the US, according to the International Grains Council and FranceAgriMer. France stands to benefit after drought destroyed part of Russia's crop and floods in Canada and Australia hurt local production.

Above-average rain during last year's harvest in Germany, normally a supplier of milling-grade wheat within Europe, lowered part of the local crop to feed quality.