Canada Markets

European Milling Wheat under Pressure

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The December Matif milling wheat contract has fallen 5.8% since Nov. 6 while moving below its 50-day moving average and near a one-month low. This move is despite the weaker Euro trade which has trended lower since mid-October (third study). The lower study shows the Dec/Mar spread weakening, a sign of growing bearishness. (DTN graphic by Nick Scalise)

A combination of adequate global supplies, waning export demand and favorable weather continue to weigh on wheat prices.

Tuesday's DTN Market Weather Factors were viewed as bearish for wheat, with reports of precipitation hitting areas of the U.S. Southern Plains, as well as in areas where badly needed in Ukraine and southern Russia and in southeast Australia.

Monday's weekly Crop Progress report saw the Good to Excellent rating for winter wheat in the United States increased to 52%, the third consecutive weekly increase and above the five-year average of 50.6% Good to Excellent for the same week. DTN's Market Weather Factors for wheat were also reported as bearish on Tuesday, with this week's global weather seen benefiting prospects in key growing areas around the world.

It's interesting to note that milling wheat futures in Europe have fallen in six of the past seven sessions, while the Euro has been in a downtrend since mid-October and making European supplies increasingly price competitive in export markets.

The USDA's November estimates boosted the European Union's wheat production by 2 million metric tons to 157.27 mmt, slightly higher than last year, while exports are pegged at 33.5 mmt, which is 1.9 mmt below 2014/15 levels. Ending stocks in the EU are expected to grow 3 mmt, from 2014/15 to 16.34 mmt.

Dow Jones reports today that due to disappointing exports since summer, congested storage facilities in France has led to the closure of three major grain terminals since last Thursday to deliveries of wheat, the most recent one closing on Tuesday. Agrimoney.com reports that export licenses issued for wheat in the EU are 31% behind last year's levels.

As seen on the attached chart, Tuesday's low and close on the December contract are the lowest levels seen in almost one month. This move is taking place despite Euro weakness, which has seen the currency fall 7.3% since mid-October, while making European stocks more price-competitive in export markets. Last week saw Egypt make four purchases in two different tenders, with France landing just one of the four, which points to the challenge faced competing against both Russian and Ukraine offers in the global market.

The lower study shows the Dec/March spread on the Euro/metric ton chart, which has widened from EUR4.75 on Nov. 6 to EUR8 today, suggesting an increasingly bearish view of market fundamentals held by commercial traders. Chart support is found at EUR8.75 which was reached on Oct. 5.

Today's trade saw the formation of an outside trading bar, trading both higher and lower than yesterday's range wile closing lower, which is a signal of weakness. Given further downside, potential support may be found at EUR172.56, the 61.8% retracement of the move from the September low to the November high, while EUR171.49 represents the 67% retracement of the same uptrend.


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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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