January 23, 2009

European Union wheat has become competitive as its prices are now close to competitor levels in the global grains market, hence, increasing prospects of more exports, European traders and analysts said on Thursday (January 22).

 

A trader noted that prices in EU, the US and Russia are currently unusually close to each other. He observes that if the euro falls further against the dollar, the chances of EU sales in upcoming tenders will rise.

 

The euro suddenly shot up in value against the dollar in early December, rising from around US$1.30 to over US$1.40, making EU wheat expensive in the key Middle East export market.

 

However, euro dropped steadily throughout January and was at US$1.29 at 1630 GMT on Thursday. The decline will make EU wheat more competitive and a fall to around US$1.25 to US$1.20 could see generation of new sales, the trader said.

 

In Egypt's closely-watched tender on Wednesday, the country bought 60,000 tonnes of French wheat at US$190.80 a tonne fob, 60,000 tonnes of US at US$189 a tonne fob and 58,000 tonnes of Russian at US$187 a tonne fob.

 

The trader said main origins are basically in the same price range with no-one holding a major advantage. Currency movements and internal market price moves could be key to who wins export business in the next few weeks, he added.

 

Recent Russian domination of Middle East wheat exports has been weakened by the country's state intervention purchases which have supported prices.

 

Russia has allocated almost US$3 billion to support its farmers through state grain purchases, on Thursday alone a substantial 140,130 tonnes was bought.

 

According to Emmanuel Jayet, agriculture analyst at French bank Societe Generale, the trade is in a phase where competitors are evenly matched and is hard to say who is going to win the next tender.

 

Rival producer Argentina has greatly weakened its competitiveness in the global market due to drought, traders added.

 

With prices so close together, the next tenders could also be decided on buyers' preference for quality or underlying preference for a specific origin, which could help French or German suppliers.

 

Competition from Russian grain in the coming months could also depend on the new crop outlook and export subsidies.

 

An exporter observed that if crop outlook remains favourable, Russia may decide to empty its stocks before the end of the season and implement the export subsidies it has announced.

 

Over 5 million tonnes of French wheat had been shipped outside the EU by mid-January, more than half way towards the 9 million tonne target set for the season by French arable crop agency ONIGC.

 

Reaching the target would be the best performance since the 10 million tonnes exported in 1984/85 when the former Soviet Union was a major importer. It will also hinge to a large extent on winning business from Egypt, French dealers stressed.

 

Increased competition from German wheat, whose quality is superior to that of French grain and whose prices were less in recently, is another major factor this season, traders stressed.

 

German wheat is particularly well positioned in exports towards Iran, notes another exporter.

 

Iran, which has been a major buyer this season after drought affected its domestic crop, is expected to make further purchases soon, he added.