Talk of a bumper milling wheat premium may have been overblown, at least in Europe, despite rain damage to many crops, including Germany’s, and a further setback to the trade campaign in key export rival Ukraine.
Germany could have a surplus of 1.7m tonnes in its exportable wheat supplies in 2011-12, FCStone analyst Jaime Nolan said, despite the lower quantity and quality of its crop, which has been dogged by a succession of weather hiccups, most lately harvest rains.
While the German wheat crop, the European Union’s second largest, and usually noted for its milling quality, has been dogged by poor weather through much of 2010-11, concerns may have been overegged.
Coupled with improving ideas of the Canadian harvest, and better prospects for the Australian crop reaped late in the calendar year, "and the picture for milling quality supplies from a European and global perspective are perhaps not as bad as many had expected two months ago", Mr Nolan said.
"It is hard to see much more of a premium going on for quality," he told Agrimoney.com.
"Market prices would suggest we are starting to factor that in," he added, as milling wheat for November delivery dipped 1.2% to E208.75 a tonne in Paris.
‘Satisfactory to good’
The idea that the German harvest had beaten at least some expectations was borne out by an official estimate on Thursday that the crop would come in at 23.0m tonnes, down 3.4% year on year but 1.0m tonnes above an estimate from farm co-operatives.
"Difficult sowing conditions last autumn, too little rain in spring, deep frosts in May and strong rainfall in the harvest time have made work difficult for our farmers," Germany’s farm ministry said.
However, despite the weather setbacks "mostly good quality [wheat] could be harvested. There are certainly regional differences but the quality can be regarded as satisfactory to good".
Separately, the UK’s Home Grown Cereals Authority said: "Although concerns over [German] quality have risen, the amount of downgrading to feed wheat is likely to be less than last year when rain also disrupted harvest."
Mixed Ukraine news
The HGCA was also upbeat over prospects for the Ukraine wheat crop, after the harvest was reported at hitting 23m tonnes by Sunday.
"[This] will likely lead to increases in US Department of Agriculture and International Grains Council estimates for the total crop that currently stand in the region of 21m tonnes," the authority said.
Nonetheless, Ukraine’s chances of improving for now on its poor start to grains exports in 2011-12 dimmed on Wednesday with the announcement by its finance ministry that it will put off until January a move to cut levies on shipments blamed for leaving them uncompetitive with Russian supplies.
Mr Nolan said that it was early next year – as southern hemisphere, and potentially Ukrainian, supplies come on tap – which would be crucial in determining if he was correct on German wheat exports.
His sums assume a crop of 23m tonnes, of which some 70%, or 16m tonnes, is of milling grade. Of this 7.5m tonnes is assumed consumed within German, and roughly 7m tonnes exported.