EU sticks by downbeat wheat export hopes, despite harvest upgrade

28.08.2017

The European Union stuck by a, lowball, forecast for the bloc's wheat exports this season, despite raising its production forecast, amid growing ideas of competition from Russia's record harvest.

The European Commission raised by 800,000 tonnes to 139.4m tonnes its forecast for soft wheat production in the EU, the top grower of the grain, taking it more than 5m tonnes above last year's result, which was undermined by late rains.

The upgrade reflected an improvement of 0.1 tonnes per hectare, to 5.9 tonnes per hectare, in the yield estimate, offset in part by a decline in the area figure.

While the commission did not expand on the reasons behind its revisions, the yield upgrade tallies with market ideas of surprisingly strong results for France, where crops were this year tested by summer heat.

On Thursday, the International Grains Council raise by 200,000 tonnes to 139.5m tonnes its forecast for the EU soft wheat crop, "as upgraded numbers for France and Bulgaria offset reductions" for the UK, and for Germany where "persistent rains hampered fieldwork in central and eastern Germany, leading to worries about yield and quality losses".

EU exports tumble

However, the commission stuck by an estimate of 26.0m tonnes for EU soft wheat export in 2017-18 nonetheless, seeing the bulk of the extra supplies instead going into year-end inventories.

The assessment follows a weak start to the season for shipments, with soft wheat exports as of August 22, at 2.03m tonnes, down 55% from the 4.49m tonnes exported as of the same time in 2016-17.

Indeed, EU export prospects are, thanks to the bloc's geographical position and to a reviving euro, seen as particularly vulnerable to a surge expected in former Soviet Union shipments, with expectations of a record Russian harvest.

The IGC on Thursday became the latest commentator to lift its forecast for the Russian crop, durum included, by 9.0m tonnes to 80.0m tonnes, flagging winter wheat harvest results which have "exceeded expectations", and a boost to spring crop yield ideas from "abundant soil moisture".

The council also lifted its estimate for Ukraine's all-wheat harvest by 2.5m tonnes to 26.0m tonnes, and that for Kazakhstan by 500,000 tonnes to 13.8m tonnes.

'EU offers aren't competitive'

Analysts at Paris-based Agritel, terming the EU shipment data "disappointing", said that the "weakness of exports is linked to the appreciation of the euro versus other currencies and the stiff competition from Black Sea producers".

"Traders will now pay attention to the Algerian tender where French origins should be retained at least for a part," with France a default origin for the North African country.

Algeria in fact unveiled the purchase of 590,000 tonnes of wheat on Friday, at prices reported at $200-201 a tonne on a cost and freight basis, but with origins unconfirmed.

'No choice but to offer aggressively'

US broker Benson Quinn Commodities said this week that "EU wheat offers aren't competitive, I mean $15-20 a tonne, from competing with Black Sea values.

"This going to have to change if they have any interest in doing business with anyone other than Algeria.

"The Russian crop is getting bigger. They have no choice but to offer it aggressively."

In the UK, grain merchant Gleadell said that increased expectations for Russian's harvest were doing "little to lessen the prospects of a continued aggressive pricing strategy from the region".

'Logistical bottlenecks'

One hope for EU exporters has been ideas that exports from the former Soviet Union may be prevented by logistical hiccups, or poor weather, from reaching their potential.

"It is possible that the huge quantity of grains to be moved could cause logistical bottlenecks on railways and at ports at times," the IGC said.

"Because of this, market participants speculate that Russia's wheat exports could be constrained… regardless of the size of the harvest," and potentially limited to 30m tonnes.

Nonetheless, the council lifted its own forecast for Russia's all-wheat exports by 2.1m tonnes to 32.0m tonnes, taking it 4.0m tonnes above last season's record high.

"With large shipments of other grains anticipated too, mainly corn and barley, Russia's total grains exports could reach 42m tonnes for the first time."

The estimate for Ukraine's all-wheat exports was raised by 2.0m tonnes to 15.5m tonnes, while that for EU shipments was cut by 900,000 tonnes to 29.9m tonnes, reflecting a 2.0m-tonne downgrade to 28.4m tonnes in the soft wheat number.


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