October 25, 2011


Europe's wheat futures increase



European wheat futures increased together with broad gains in commodities on Monday (Oct 24) as investors felt encouraged from a European deal to manage the debt crisis and an enhanced manufacturing indicator in China.


According to Reuters, European wheat remained firmly in its recent range, however, with traders citing a lack of fundamental support, as Ukraine's return as an approved supplier for Egypt's state buyer underlined stiffening export competition.


The market was also curbed by a six-week high for the euro against the dollar, although the exchange rate was choppy as sentiment remained fragile about the outcome of the European crisis talks.


Investors warmed to progress made by EU's leaders on Sunday (Oct 23) towards agreeing a new package to shore up the euro zone, even if final decisions were left to a follow-up summit on Wednesday.


"It has to do with financial markets. Equities are rising as we wait for Wednesday (Oct 26)," a French dealer said.


January milling wheat on the Paris-based futures market was up EUR1.25 (US$1.74) or 0.68% at EUR185.25 (US$257.79) a tonne.


European prices drew strength from a rise on CBOT.


Markets also welcomed news that China's manufacturing sector expanded moderately in October to snap three months of contraction, soothing fears of an abrupt slowdown in the world's second-largest economy.


However, the decision by the state buyer in Egypt, the world's top wheat importer, to re-admit Ukraine to its list of approved suppliers could increase competition for EU wheat in addition to heavy shipments from Russia.


Despite a heavy volume of shipments so far this season, Russian prices declined again last week as the country's harvest campaign approached a close. Traders said competitively priced Russian wheat could pose a challenge to French wheat in Morocco, one of France's major export outlets.


Meanwhile, the corn harvest in France was continuing to produce record yields above 10 tonnes a hectare locally and traders said a lack of storage space was leading to price discounting and a wave of export loadings at the southwestern port of Bayonne.


In London, Feed wheat futures were also higher, with November up GBP1.75 (US$2.80) or 1.18% at GBP149.50 (US$239.17) a tonne.


"We maintain a higher estimate for feeding wheat, we think the USDA are underestimating it from a US and global perspective. Feed wheat into the major importing destinations is trading at a discount versus corn so there's definitely an incentive," said an analyst at Macquarie Bank.


German traders said the EU wheat export outlook remains tough with more competition from Ukraine and Kazakhstan looming in addition to booming exports from Russia.


Spanish physical wheat was marginally lower after lining up with recent falls on futures markets in Paris and CBOT, but had slowed recent falls due to uncertainty over the availability of French new crop corn as a competitor.


Traders said the domestic corn harvest was well advanced, but doubts persisted over the availability of corn by road from its traditional supplier over the Pyrenees.


Imported feed wheat for prompt and November-December delivery was quoted at EUR195-197 (US$271.36-274.15) per tonne in Spain's main grains port Tarragona, down EUR2-3 (US$2.78-4.15) from last Thursday (Oct 20).


Dealers noted the spread between November feed wheat and corn was unusually narrow at EUR2 (US$2.78), suggesting wheat had downside potential.

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