October 24, 2011
EU wheat farmers to be wary of higher wheat prices expectation
European farmers should be more cautious in hanging on for higher wheat prices as exports from competitors, Black Sea and the region's own consumers have already covered their needs.
The world shortage of corn, which is interchangeable with wheat in many uses, should put a floor under values, and could provide some buoyancy now that the US harvest is reaching its end, FCStone risk manager Jaime Nolan Miralles said.
"We are approaching the seasonal low in corn market values and as such wheat values will correspond," Nolan said.
However, the European market faced the pressure of a strong harvest which had left regional supplies at comfortable levels and without the demand from importers now that the Black Sea competitors were taking back market share.
Russia, which has made a strong start to 2011-12 shipments, and Ukraine, which should prove a stronger competitor now it has ditched export levies, is going to retain key pressure on prices.
Even quality was no protection, given that Europe's crop had proved of far higher quality than earlier feared, and with European flour mills having forward covered a significant proportion of their needs.
"European demand pipelines are near filled in quality wheat space through December 2011," said Nolan, claiming that FCStone represents groups accounting for more than 10% of buying of quality wheat in Europe.
Nolan forecast that any strength in values will hit a ceiling pretty quickly, with market dynamics telling too on the, atypical, premium that Paris's near term contracts have over later lots. "We expect market pressure to alleviate that inverse over the coming weeks."
In the market for quality wheat, "we expect some short-term weakness" in premiums, he added.
This would be evident even in the German market, where wheat at Baltic ports has enjoyed an unusually strong basis over Paris futures, topping EUR40 (US$55.6) a tonne in August, before losing some EUR10 (US$13.9) a tonne by late September. This decline in premium was set to continue.
Indeed, the German wheat crop, while of lower quality than the typical year, when 90% is of milling grade, had, at 75%, proven far better than the 2010 result, where late rains also dogged the harvest. Last year, less than 45% was of milling quality.
The protein level in the French crop, the European Union's biggest, while at 11.5% slightly below average had, beaten earlier expectations. Crops in the likes of the UK, Hungary and Romania had come in ahead of prior year results.
Poland was one country where the harvest had disappointed, having been pretty much decimated by a constant deluge of rain during the summer, which had left only 50% of milling grade compared with an average of 80%.
USDA attaches warned earlier this week that polish grain quality is reported as poorer due to fungi presence after excessive rainfall prior/during harvest".