European/Global Wheat market

Analysis
January 2011
Jaime Nolan Miralles
Commodity Risk Manager
www.fcstone.com

WORLD WHEAT SUPPLY & DEMAND

USDA January 2011 (Mmt)

1
 WORLD WHEAT SUPPLY & DEMAND
Dec/Jan Changes/USDA January 2011 (Mmt)

• Global beginning stocks increased

.8mmt from 196.68mmt to 197.43mmt

• Global Production decreased .7mmt

from 646.5mmt to 645.82mmt

• Global feed use reduced .3mmt from Ample stocks to

meet global demand
124mmt to 123.73mmt for current marketing
year.

• Global total use reduced 1.1mmt from

666.4mmt to 665.27mmt

• Global ending stocks raised 1.2mmt

from 176.72mmt to 177.99mmt

WORLD WHEAT SUPPLY & DEMAND

USDA January 2011 (Mmt)

2
 European Wheat Supply and Demand
January 2011 (Mmt)

• EU production increased .3mmt to 136.53mmt

• Imports decreased .5mmt to 4.5mmt
• Feed use decreased 1mmt to 53mmt
Current
• Total use decreased 1.5mmt to 122mmt export pace
would
suggest
• Ending stocks increased 1.3mmt to 12.91mmt lower ending
stocks.
France is key

European Wheat
USDA January 2011 (Mmt)

Downward trend
in End stocks
from 18.97mmt
in 2008/9 to
Market current
conditions estimated level
suggest this of 12.91mmt.
will continue Trade feels this
to decline level could be
Exports unless lower
hold firm prices ease
vs. last off current
years and level
down
3.3mmt
on 2008/9

3
 European Wheat
Overview of USDA figures

• EU Production – Increase to 136.53mmt comes as

little surprise with strong wheat prices around our
planting window in EU encouraging increased
plantings amid positive planting conditions

• Imports are reduced .5mmt – Reflecting greater

flexibility and drive by EU consumers to maximize EU
output/quality

• Decrease in feed use reflecting price rationing in this

sector as animal producers struggle to cope with high
compound prices. Set to continue!

European Wheat
Overview of USDA figures

• Overall consumption down 1.5mmt. We are seeing

the first signs of human consumption rationing. If we
compare price movement in Europe to that in the US
we can see that both the magnitude and volatility
have been greater in Europe. Balance sheet is also
opposite to US.

• Exports remain at 22mmt. Key exporters such as

France and the UK are seeing export pace raise
serious questions.

• Ending stocks increased to 12.91mmt, however the

point above brings into question this figure.

4
 France
Overview
• Winter wheat plantings ended in late November with strong area
estimated by Agrimer for winter and spring wheat plantings at
5.03mha

• French exports reduced by around 9% on last years figure by

Agrimer at 18.77mmt representing 6.85mmt to EU and a record
11.8mmt for third country export and compared to 9.8mmt last
year.

• French ending stocks estimated at 1.96mmt vs. 3.4mmt last year

down 42.5%

• Trade feels this figure may even lower.

• Talk of Export restrictions from French Ag ministry that are

subsequently dismissed add further concerns. Will Australia and
Argentina be in a position to deliver to world market??

France
Overview
• Talk of Export restrictions from French Ag ministry
that are subsequently dismissed add further
concerns. Will Australia and Argentina be in a position
to deliver to world market??

• High cost of feed sees French co-ops beginning to

source feed requirements from imports including corn
from Ukraine and Sorghum from the US.

• Sourcing of lower grade EU wheat from Germany

continues as operators blend, retaining as much
quality until back end of marketing year. Expect
quality premiums to build for French wheat in end of
marketing year. Main holder of volume quality wheat
in Europe

5
 Germany
Overview
• First German planted area estimates sees winter wheat area
unchanged for 2011 at 3.26mha.

• Wet weather hindering planting intentions is primary driver

behind lack of area increase despite Rapeseed plantings falling
foul of weather.

• Logistical blockage in central Germany (Rhine) as ship carrying

toxic load sinks is not expected to upset overall trade.

• Dioxin contamination further hitting an already hard hit feed

industry

• German A and E wheat retain premiums with firm upward trend

in tact on cash market.

UK
Overview
• DEFRA peg UK exports at 1.3mmt. However
with pace already way ahead in the first half
of marketing year 2010/11 this estimate is
unrealistic.

• Therefore with ending stocks figure of 2mmt

we can expect the end result of this years
exports to impact this figure.

• Question mark over ability to meet sales

already on the books with current stocks

6
 Spain
Overview

• Spanish output for 2009/10 4.7Mmt vs. 3.3Mmt

(Marm)

• Demand continues to avail of discounted national

wheat prices vs. imported values as has been
reflected in basis these past several months.

• Feed and animal sector continues to struggle with

current high prices, reflecting the trend across Europe

European Exports
Slowdown slow despite current price levels

Last week saw 675Kt

being awarded. Thoughts
of previous two weeks
levels of 72Kt and 188Kt
seeing demand rationed
premature

7
 European Exports
Shift in Pace and Direction

European market

• Persistent calls from the political world for strong regulation on

futures market are a concern.

• Continued misunderstanding and misappropriation of blame on

current price rise by politicians must be put in check.

• The current bull run in Europe strongly reflects underlying

fundamentals!

• Kneejerk reaction from Commission could ultimately cripple

the very tools that can help a struggling EU commercial
market from mitigating risk.

• Need for greater dialogue between all concerned parties.

8
 Southern Hemisphere
Australia

Australia
• Decrease in production of
.5mmt
• Increase in feed wheat total to
5.4mmt
• Exports decreased 1.5mmt
• Ending stocks increased .5mmt

• Expect feed % to potentially

increase and exports to decline
further
• Exportable surplus in wrong
area
• Floods impact on logistics
expected to be limited

9
 Argentina
• Beginning stocks raised .9mmt
• Output raised .5mmt
• Exports increased .5mmt
• Ending stocks increased .9mmt

• Trade talking of output

potentially reaching 15mmt
• Industrial unrest is back with
farmers halting sales of wheat
on export quota dispute
• Brazil will mop up much of
Argentina’s wheat exports

Implications of Southern
Hemisphere on Europe

• With Australia’s impact on world trade reduced

and Argentina’s looking at disruptions, any
expected alleviation for European export pace
rests with the US export market.

• Market volatility sees nations building stocks as

is reflected in Egypt and Saudi Arabia

10
 Wheat market – some of the key near
term bullish/bearish drivers

• Shortage of global quality milling • Positive EU planting conditions

wheat
• Climate risk for EU/global new
crop 2011 – March onwards in
particular
• Poor condition of US winter wheat
• Export pace in EU eroding ending
stocks/buffer
• Price rise decreases feed use but
global human consumption still
strong
• Uncertainty drives stock building
• Corn S&D will keep floor under
wheat prices out to March
and good snow coverage across
key EU producers last 8 weeks
• Estimated increase in Ukraine
production
• Sufficient US stocks to meet
global demand
• Fundamentals well priced into
current market
• Feed demand is being rationed
globally and in EU particularly
• Bullish USD
• March will see crop emergence in
US. Good conditions could see
prices ease off current levels.

Other key points

•With a tightening of global wheat stocks we cannot

afford another climate driven upset for 2011/12
without a corresponding drive higher in prices.

• Russia will not participate in a meaningful manner

post July 2011

•US Acreage battle to be at the fore with an

increasing tightening of US Corn S&D Balance.

11
 Corn
We will follow corn and beans out to March

Corn

•Brazil and China data left unchanged

•US Corn accounts for up to 60% of global

trade

•We need to see more demand being

rationed

•We cannot afford a reduction in supply yet

this is what we are getting

12
 Chinese Imports of Corn
Will they cease importing??

Other external Drivers

USD

Inverse relationship with grains

may fail to stem price rises as
fundamentals both internal and
external dictate terms

13
Other external Drivers
Funds

Global wheat futures market

14
Global wheat futures market

More
upside
potential
in
Chicago
than
Paris!

Global wheat futures market

Current S&D
suggests this
trend may be
broken or at least
well exceeded.

15
Global wheat futures market

Global wheat futures market

Despite current spread,

logistics, freight and
Euro weakness
continue to see demand
come into Europe

16
NYSELiffe forward curve

NYSELiffe forward curve

We should expect this spread to

move higher as quality premiums
build into back end of 20010/11.

However, corn strength may limit

the widening of spread.

17
When will the bull run end?

Monitor OI closely. Smart

money always gets in first and
out first. Any correction in
current trend will be preceded
by move lower in OI

EU Basis
French 11% Pro

18
 EU Basis
German 12% Pro

EU Basis
National 11% Pro

19
 EU Basis
Italian 11%+ Pro

Recommendation

• For recommendations contact your Risk management

Consultant

•Watch for the inverse in NYSELiffe milling wheat when

placing your hedge

20
 Thank you

FCStone Commodity Services (Europe) Limited is regulated by the Financial

Regulator.
Incorporated and registered in Ireland at 5th Floor, Portview House, Thorncastle Street,
Dublin 4. Registered number 469026.
Past performance may not be a reliable guide to future performance. Mention of
specific commodities should not be taken as a recommendation to buy or sell these
commodities. Commodity Trading is risky and FCStone Europe and FCStone Group
LLC assume no liability for the use of any information contained herein. Past
financial results are not necessarily indicative of future performance. Information
contained herein was obtained from sources believed to be reliable, but is not
guaranteed as to accuracy. Any examples given are strictly hypothetical and no
representation is being made that any person will or is likely to achieve profits or
losses similar to those examples. References to and discussions of OTC products
are made solely on behalf of FCStone Europe. Neither this information, nor any
opinion expressed, constitutes a solicitation to buy or sell futures or options or
futures contracts, or OTC products. Reproduction without authorisation is forbidden.
All rights reserved.

21