Oct. 25 (Bloomberg) -- Surging demand for European Union wheat is reducing stockpiles to a 14-year low and driving prices in France, the biggest exporter, to a record premium over U.S. grain after drought withered supply from the Black Sea region.
EU licenses to ship wheat in the six weeks to Oct. 23 were 51 percent higher than a year ago, data from the bloc showed today. French grain for March delivery trades at a premium of 39 cents a bushel to Chicago futures, from a 78-cent discount in July. That will widen to 50 cents by the time the contracts expire, the highest since they began trading, according to the median of five analyst estimates compiled by Bloomberg.
Global consumption will be the second-highest ever this marketing year, at a time when output in Russia, Ukraine and Kazakhstan, the Black Sea region’s three biggest exporters, is falling to a nine-year low, the U.S. government estimates. Egypt, the largest importer, bought at least 540,000 metric tons from France in the past six weeks and nothing from the U.S. Once shipping is included, U.S. wheat is still too expensive, said Nomani Nomani, vice chairman of Egypt’s state grain buyer.
“The entire story in wheat is one of location,” said Chris Gadd, an analyst at Macquarie Group Ltd. in London. “Right now the exportable surplus in Russia and most of the former Soviet Union is running out. The French seaborne supply will get tight into the first quarter, so this will be supportive of prices in Paris versus Chicago.”
The March contract traded on NYSE Liffe in Paris rose 37 percent to 264.50 euros a ton ($9.32 a bushel) this year as its equivalent on the Chicago Board of Trade advanced 22 percent to $8.925 a bushel. The widening spread is one of five trading recommendations being made by Goldman Sachs Group Inc.’s commodity analysts, led by Jeffrey Currie in New York.
The Standard & Poor’s GSCI Agriculture gauge of eight commodities gained 12 percent since the start of 2012 as U.S. farmers endured the worst drought since 1956. The MSCI All-Country World Index of equities added 9.8 percent. Treasuries returned 1.7 percent, a Bank of America Corp. index shows.
France will send 9.5 million tons of soft wheat outside the 27-nation bloc in the year to June, from 8.4 million tons a year earlier, the national crops office said Oct. 10. FranceAgriMer’s estimate was 500,000 tons higher than a month earlier. The U.S. Department of Agriculture cut its prediction for U.S. shipments by 1.36 million tons to 31.3 million tons the following day, while forecasting a 13 percent increase in the harvest.
U.S. wheat is about $20 a metric ton (54 cents a bushel) more expensive than the competition, Nomani said. Shipping grain to Egypt from New Orleans was about $11.50 a ton more than from Rouen, France’s biggest grain-shipping hub, as of Oct. 22, said Nick Higgins, an analyst at Rabobank International in London.
EU inventories will drop 5.7 percent to 9.9 million tons of soft wheat by the end of the season as dry weather cut output from Spain to Romania, according to the European Commission, the EU’s regulator. The bloc issued licenses to ship 2.38 million tons of soft wheat in the six weeks ended Oct. 23, from 1.58 million tons a year earlier. Licenses in the week to Oct. 2 were the highest since January 2011. U.S. exporters sold 9.9 percent less in the six weeks through Oct. 18, government data show.
The surge in French prices may be curbed by weaker demand from some of the biggest buyers after gains in local production. Egypt will import 2.65 million tons less this marketing year and Algerian purchases will decline by more than 1 million tons, the USDA estimates. Egyptian farmers will reap 8.5 million tons and those in Algeria 3.25 million tons, both the second-largest harvests on record. The USDA is forecasting a 16 percent drop in global exports.
While the U.S. may be losing out to the EU now, demand for its grain may accelerate as European stockpiles drop. Combined EU wheat output will shrink 4.2 percent this year, the USDA estimates. The agency’s forecast for U.S. sales still implies a 9.6 percent gain on 2011-2012. Shippers also face less competition from Argentina, the sixth-biggest exporter, after the government predicted a 16 percent drop in output on Oct. 18.
“We still have big quantities in France, but once the flow starts it will vanish rather quickly,” said Pierre Raye, a Paris-based analyst at InVivo Group, the largest exporter of French wheat. “We will need big exports from the U.S. during the second part of the season.”
When Russia and Ukraine curbed exports two years ago after droughts, U.S. sales surged 47 percent to an 18-year high, USDA data show. Shipments from the EU gained 3.6 percent, the agency estimates. Paris futures still jumped 92 percent that year, twice the gain in Chicago.
Russia, the third-largest exporter last season, may harvest 40 million tons this year, the government said Oct. 9. That’s 1.5 million tons less than after the drought in 2010. There is no need to limit shipments this time because there is ample supply to meet domestic demand, President Vladimir Putin said Oct. 10.
“If the Russians halt exports, I will have the choice of Argentinian and French wheat,” Nomani of Egypt’s state grain buyer said in an interview Oct. 18. “The French are in a better position to export since they have a surplus.”
Ukraine may decide to restrict shipments next month after demand accelerated faster than available supplies, Volodymyr Klymenko, the head of the country’s Grain Association, said in an interview Oct. 19. Sales may reach 5.3 million tons by Nov. 15-20, which could exhaust the exportable surplus, First Deputy Agriculture Minister Ivan Bisyuk said the same day. Ukraine hasn’t made a decision to ban wheat exports, Vitaliy Lukyaneko, a spokesman for Prime Minister Mykola Azarov, said yesterday.
Russia and eastern European countries including Ukraine and Romania, which dominated Egyptian purchases earlier in the year, sold no wheat to the North African country in its most recent tender Oct. 3. Wheat shipments from Rouen, which accounted for 41 percent of France’s seaborne exports last season, reached 439,704 tons in the past three weeks, 24 percent more than last year, port data show.
“There’s going to be massive demand,” said Laurent Martel, the director general of Senalia, the biggest grain-storage company in Rouen. “Demand is above availability in terms of wheat, and world stocks are very low.”
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