Session timeout

Sorry, your session timed out after a long time of inactivity. Please click OK and Sign In again.


REPORT: European wheat situation for 2016/17 campaign. September 2016

by James Dunsterville, Chairman, AgFlow

With the summer coming to an end, nearly all of the European wheat crop has been harvested. It has been a mixed harvest bringing poor results mostly across Central EU origins and it appears to be mainly a low Test Weight (TW) that has caused most of the problems.

FranceAgriMer indicated on the 22nd of August 2016 the French TW test results: 39% of tests showed TW less than 72kg/hl, 33% of tests showed TW between 72 and 76kg/hl (Normal cash trade and Euronext futures specification contract TW is 76kg/hl).

Also the Protein test results indicated 94pct over 11.5pct, 33pct over 12.5pct (probably the best seen in ten years).

The industry has and will adjust from the last campaign 2015/16 of record production, high quality, good domestic supplies, large Third Country exports and ample carry out stocks to a present campaign 2016/17 of reduced production, low TW quality, reduced Third Country exports, potentially reduced carry out stocks but sufficient domestic supplies.

The consequences of a poor test weight will impact Third Country export markets more than the domestic trade.

Domestic European millers are extremely good at adapting to the quality issues for each campaign. This can also be said for the producers, collect coops and traders.

For the present campaign, producing a low TW will mean extra work for the industry to screen, clean, segregate and blend the new crop supply. For this campaign they have the advantage of a good quality large carry in stock.

Even with the quality problems which involve extra costs through the supply chain the consumer is seeing low wheat prices. World carry in stocks, good world production and stable carry out stocks combined with decreases in the corn markets has all contributed to low prices.

Today’s market conditions are not seen as problematic for the domestic milling industry. There will be some adaption in the grain movements compared to the previous years, but this will be part of a routine campaign exercise.

EU Black Sea origin wheat has been imported into France and the United Kingdom is likely to import more wheat from Northern European origins than usual.

EU Third Country wheat exports are likely to be reduced due to the quality issues (TW). The importers have ample supplies from other origins and hence little concern about the lack of EU supplies. There will actually be an increase in supplies from the EU Black Sea (larger Romanian production) that will party balance the decrease from the West EU (lower France and German production).

The overall EU decrease can be substituted by Russia with help from the USA and Australia. Recent replacement calculations would indicate US HRWW is competitive. There are questions about the Russia export supply potential and perhaps some quality issues but the market presently would suggest the trade doesn’t see this as a potential pain point for Third Country destination buyers.

European Wheat market trends will still be highly influenced by the world wheat situation and the impact of financial markets.

These topics will be discussed during the Global Grain Geneva conference in November, when the picture will be far clearer but at time of writing the bull/bear scenario appears to indicate that the downside risk is limited although it is difficult to warrant a

bullish trend, despite the fact that all the bearish elements, big supplies, good potential end-stocks and new crop planting weather satisfactory are already priced in.

The bullish elements include:

-     US markets are at ten year lows
-     US HRWW looking as a competitive wheat supplier on a FOB basis
-     Quality issues across the EU and partly for Russia. Also Canada still harvesting and Australia harvest not until December.
-     Farmers are generally reluctant sellers (can you blame them at present levels)
-     Consumers might take more cover in present conditions
-     Demand increase could come from India – quantity will depend on logistics and funding
-     Corn – US futures chart looks positive, can wheat/corn spread narrow more

Content provided by James Dunsterville, Chairman, AgFlow
6 September 2016

This content is provided by Global Grain Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

Related Insights