January 19, 2011

 

EU wheat prices may escape fall in pre-harvest

 

 

European's grain prices in 2011 may break the trend of dropping ahead of the harvest period because of tight wheat markets, apparent in pressure on French and UK inventories, a leading analyst said.

 

Europe's wheat prices usually start a seasonal drop in early March, in expectation of sales by farmers emptying silos ahead of a harvest which will itself lift supplies. It is a period often viewed by consumers as an optimal buying period.

 

The price fall, as evident on the Paris futures market, has typically been of some 5%, although it has been particularly pronounced over the last three years, averaging roughly 14% in the three months to early June.

 

However, this year wheat "supply and demand dynamic suggests this trend may be broken", Jaime Nolan, a commodity risk manager told investors.

 

And even if prices did begin a seasonal dip, they were still likely to "well exceed" historic levels.

 

The forecast comes amid growing expectations of tightness in regional wheat supplies, with the European Union's clearance of 675,000 tonnes of soft wheat last week "putting a nail in the thought" that shipments were on a slowing trend.

 

The previous week, which backed onto the New Year holiday period, the EU cleared 72,000 tonnes.

 

"Key exporters such as France and the UK are seeing export pace raise serious questions," Nolan said, noting that French stocks were expected to fall by 42% to less than 2 million tonnes this season, and flagging that a UK forecast of steadier inventories "does not really stand-up"

 

"UK exports are well ahead of what would be required to hit the target of 1.3 million tonnes," he said, adding that there was a "question mark" over the country's ability to meet current sales obligations for 2010-11.

 

Meanwhile, in central and eastern Europe, the strength of early-season sales meant "these countries will need to be importing quality wheat, particularly towards the back end of the 2010-11 year".

 

This prospect of further buying pressure comes while importers' choice of suppliers is diminishing, with Black Sea supplies under hefty restrictions and with expectations "quite questionable" that Argentina or Australia, the big southern hemisphere shippers, can fill the void.

 

Australia's prospects had been dimmed by heavy rains. And turning to Argentina risked competing with neighbouring Brazil, which was set to take a large part of shipments, and braving the latest in a series of farm strikes.

 

"January comes around again and yet again we are involved in industrial action," Mr Nolan said.

 

However, he backed expectations of an increasing US role in meeting importers' demand, with the country boasting "more than plenty" in its wheat silos.

 

Wheat prices soared in Chicago on Tuesday (Jan 18), closing 2.6% higher at US$7.93 a bushel for March delivery, amid talk of panic buying by major importers following the Tunisian coup.

 

However, European prices were held back by firmer currencies, particularly those in London after high UK inflation data lifted expectations of an imminent interest rate rise, sending the pound to an eight-week high against the dollar and weakening the competitiveness of British exports such as crops.

 

Paris wheat gained 1.6% to EUR255.75 (US$344.05) a tonne for March delivery, with London's March lot gaining 0.5% to GBP193.50 (US$309.81) a tonne.