October 31, 2012

France's grain prices higher than US

Rising demand for EU wheat is cutting down stockpiles to a 14-year low and driving prices in France to a record premium over US grain after droughts affect supply from the Black Sea region.

EU licenses to ship wheat in the six weeks to October. 23 were 51% higher than a year ago, data from the bloc showed. French grain for March delivery trades at a premium of US$0.39 a bushel to Chicago futures. That will widen to US$0.50 by the time the contracts expire, the highest since they began trading, according to the median of five analyst estimates compiled by Bloomberg.

Global consumption will be the second-highest ever this marketing year, at a time when output in Russia, Ukraine and Kazakhstan, the Black Sea region's three biggest exporters, is falling to a nine-year low, the US government estimates. Egypt, the largest importer, bought at least 540,000 tonnes from France in the past six weeks and nothing from the US Once shipping is included, US wheat is still too expensive, said Nomani Nomani, vice chairman of Egypt's state grain buyer.

"The entire story in wheat is one of location," said Chris Gadd, an analyst at Macquarie Group Ltd. in London. "Right now, the exportable surplus in Russia and most of the former Soviet Union is running out. The French seaborne supply will get tight into the first quarter, so this will be supportive of prices in Paris versus Chicago.

The March contract traded on NYSE Liffe in Paris rose 37% this year as its equivalent on the Chicago Board of Trade advanced 22%. The widening spread is one of five trading recommendations being made by Goldman Sachs Group Inc.'s commodity analysts, led by Jeffrey Currie in New York.

The Standard & Poor's GSCI Agriculture gauge of eight commodities gained 12 percent since the start of 2012 as US farmers endured the worst drought since 1956. The MSCI All- Country World Index of equities added 9.8%. Treasuries returned 1.7%, a Bank of America Corp. index shows.

France will send 9.5 million tonnes of soft wheat outside the 27-nation bloc in the year to June, from 8.4 million tonnes a year earlier, the national crops office said Oct. 10. FranceAgriMer's estimate was 500,000 tonnes higher than a month earlier. The USDA cut its prediction for US shipments by 1.36 million tonnes to 31.3 million tonnes the following day, while forecasting a 13% increase in the harvest.

Shipping grain to Egypt from New Orleans was about US$11.50 a tonne more than from Rouen, France's biggest grain-shipping hub, as of October. 22, said Nick Higgins, an analyst at Rabobank International in London.

EU inventories will drop 5.7% of soft wheat by the end of the season as dry weather cut output from Spain to Romania, according to the European Commission, the EU's regulator. The bloc issued licenses to ship 2.38 million tonnes of soft wheat in the six weeks ended October. 23, from 1.58 million tonnes a year earlier. Licenses in the week to October. 2 were the highest since January 2011.

The surge in French prices may be curbed by weaker demand from some of the biggest buyers after gains in local production. Egypt will import 2.65 million tonnes less this marketing year and Algerian purchases will decline by more than one million tonnes, the USDA estimates. Egyptian farmers will reap 8.5 million tonnes and those in Algeria 3.25 million tons, both the second-largest harvests on record.

While the U. may be losing out to the EU now, demand for its grain may accelerate as European stockpiles drop. Combined EU wheat output will shrink 4.2% this year, the USDA estimates. The agency's forecast for U.S. sales still implies a 9.6% gain on 2011-2012.

"We still have big quantities in France, but once the flow starts it will vanish rather quickly," said Pierre Raye, a Paris-based analyst at InVivo Group, the largest exporter of French wheat. "We will need big exports from the US during the second part of the season."