Paris Wheat Breaks Outside Recent Trading Range On Weak Euro Outlook

04/11/15 -- EU grains closed with generally decent gains on the day. Paris grains continue to get help from the weak euro, with rapeseed today closing at the highest levels on a front month since Aug 10.

At the finish, Nov 15 London wheat was up GBP1.05/tonne at GBP114.25/tonne. In Paris, Dec 15 wheat jumped EUR4.25/tonne to EUR184.50/tonne, Nov 15 corn was EUR1.50/tonne higher at EUR162.25/tonne and Feb 16 rapeseed was up a euro to EUR382.50/tonne.

For Paris wheat this was the highest close on a front month since July, and a break well outside the recent range-bound region that we have been stuck in since the last day of September, helped by euro weakness and the outlook for more to come.

Most analysts are bearish on the euro, to varying degrees, but a common consensus is for further weakness at least as far as the end of Q1 2016, with something in the GBP/EUR1.44-1.47 range most commonly predicted. After that opinions start to get a bit more diverse, although many see further euro depreciation at least as far as Q2 of next year.

Tomorrow's Bank of England MPC meeting will be of interest, not that anybody is predicting an interest rate rise just yet. Most still think that they will wait for the US Federal Reserve to move first on that front, possibly in December. The BoE is then generally expected to begin raising UK interest rates gradually in Q1, or at the very latest Q2, of next year.

These days the BoE release the minutes of their meeting at the same time as the rate announcement. These will be what the market is really interested in tomorrow, to see if any of the committee members joined forces with last month's sole "dissenter" Ian McCafferty in voting for a rate rise.

One or two are reportedly wavering, most notably Martin Weale and Kirsten Forbes. In an article recently published in The Telegraph, Forbes said that waiting too long to raise UK interest rates risks was “undermining the recovery”.

Forbes said that the UK is in a “solid recovery” and warned that the benchmark policy rate will need to rise before headline inflation hits the target 2 percent. She added that keeping rates low for too long carried "distortion risks".

An 7-2, or even a 6-3 vote this time round, would likely see the pound rise further versus the single currency.

Back to fundamental grain market news, the EU Commission last night raised their forecast for the EU-28 soft wheat crop this year from last month's forecast of 144.74 MMT to 149.15 MMT, a small increase on last year's 148.74 MMT and a new all-time high.

They also upped their ideas on EU-28 barley output from 59 MMT to 60.9 MMT, again a small rise on production of 60.2 MMT a year ago.

This isn't the case for corn production however. They dropped their estimate for this year's EU-28 corn crop from 58.4 MMT to 57.4 MMT, which is now a sharp 26% reduction on a year ago.

If we combined the three main grains then that means that Europe has produced 267.5 MMT of wheat, corn and barley this year, some 19.4 MMT, or 6.8%, less than a year ago.

Elsewhere, Russia said that their 2015 grain harvest now stood at 106.6 MMT before cleaning and screening, off 98.5% of the planned area. The wheat and barley harvests are just about done. Corn harvesting is 79.6% complete at 11.2 MMT, with yields averaging 5.15 MT/ha versus 4.53 MT/ha a year ago.

Rusagrotrans dipped their toe in the water of 2016, predicting a grain crop of "at least" 100 MMT, before bizarrely then saying that it was "quite possible" that this could ultimately fall as low as 96 MMT. Maybe that lost something in the translation? They say that production this year will be 103 MMT, so presumably they are talking in clean weight looking at the Ministry figure, although they don't actually clarify.

Ukraine said that 55% of their 2015 wheat harvest was of milling standard. That's around 14.6 MMT of an overall wheat crop of 26.5 MMT. They see milling consumption at 5 MMT, exports at 8.8 MMT and 2015/16 ending stocks at 2.5 MMT. Wheat exports so far this season are said to be 7.5 MMT, of which 4.3 MMT is milling wheat, leaving an estimated 4.5 MMT of the latter still to ship.

The Ukraine Ag Ministry pared back their forecast for this year's grain crop to 59.2 MMT versus just over 59.5 MMT previously, presumably due to disappointing corn yields, although they didn't give an individual crop-by-crop breakdown. They predict total grain exports in 2015/16 at a record 36.6 MMT.