February 7, 2012


France's Paris wheat values rise to record high



In almost eight months, wheat values in Paris, France rose to a record high pushed up by a weak euro and strong technical factors, besides continued fears for the cold weather impact on crops in Europe and Ukraine.


Wheat prices rose on many exchanges, after the cold snap gave Ukraine and western Russia over the weekend temperatures termed by WxRisk.com as "remarkable  if not record setting", while parts of France and Germany, the EU's top two grain producing countries, saw cold of -20 degrees Celsius.


The freeze kept "tension on the market as winter kill might occur in the regions where the snow cap is insufficient", Paris-based consultancy Agritel said, while adding that the cold snap had weakened in the former Soviet Union.


Although it was still early to assess damage to autumn-seeded grains, "It seems that frost damaged rapeseed and barley crops in the regions close to the Black Sea", Agritel added.


In the US, crop forecaster Gail Martell said that Ukraine temperatures would this week "struggle reach the single digits [degrees Fahrenheit] for highs, dropping off to -5 to -12 degrees Fahrenheit at night".


She added: "Not much snow protection is available in the southern Ukraine where winter wheat is cultivated, just 1-3 inches."


However, wheat prices were particularly strong in Paris - closing at EUR222.25/tonne (US$291.2) for March delivery, the highest finish for a spot contract since June as the euro weakened, boosting the competitiveness of eurozone exports.


The currency was sapped by Greek delays in agreeing a EUR130 billion (US$170.33 billion) support package proposed by the IMF, the EU and European Central Bank to see-off a messy default.


Paris wheat gained further strength from technical signals, after the March lot closed at EUR215.75/tonne (US$282.69) on Friday (Feb 3), a key level for followers of Fibonacci chart patterns.


"Friday's determined close right on resistance has allowed for values to work higher again this morning," Jaime Nolan-Miralles, at FCStone's Dublin office, said.


Furthermore, the market was trading "above all our key moving averages", a positive sign for technical investors.


And, with investor positioning also occurring ahead of the USDA's key Wasde report, due on Thursday, "it looks as though the market is making tentative moves to establish and confirm higher trading ranges", Nolan-Miralles said.


Societe Generale highlighted that EU, and US, wheat export prospects had already been looking up even before the cold snap, helped by rising values in Argentina and the former Soviet Union, which had been the market leaders.


"We see the US and EU as viable (export) competitors, supporting the Chicago and Paris wheat futures prices, respectively, in the near-term," SocGen analyst Michael Haigh said.


However, it was the US which may prove the biggest beneficiary, given the apparent squeeze on European supplies evident in Paris's March contract, unusually, trading at a premium to more distant lots a so-called backwardation pattern.


"With Paris wheat markets moving further into backwardation, European wheat could quickly move to a premium to US origin wheat, increasing export prospects for the latter," Dr Haigh said. "As it is, our estimates show that the current US export sales pace exceeds the USDA estimate by nearly 200 million bushels," equivalent to 5.4 million tonnes.