EU wheat futures up on short-covering

European wheat futures pared earlier gains in afternoon trade on Wednesday after US grains markets dropped, but held in positive territory because of support from short covering and the fall of the euro against the dollar. Paris' most-traded March wheat contract, Europe's benchmark, was up 0.50 euros or 0.2 percent 183.75 euros a tonne at 1632 GMT.
This is the highest price since November 10 with support coming from short covering before the Christmas break and hopes a weaker euro will give a boost to EU grain exports. Chicago wheat futures fell early on Wednesday in a profit-taking setback after a three-day rally pushed prices to a two-week high, traders said. Paris' front month January wheat contract, which is no longer the EU benchmark, was up 2.25 euros or 1.1 percent at 193.50 euros a tonne as traders were also covering short positions before the Christmas and year-end break.
Attention was still on Argentina and southern Brazil, where dry weather has raised concern about dryness damage to crops. "The markets are now conditioned by the fears over the crop conditions in South America, wondering what will be the impact of the current drought related to La Nina (disruptive weather patterns) on corn and Soyabean crops," French analyst Agritel said. Much-needed rains are expected on Thursday for Soyabean and corn fields in Argentina and southern Brazil, offering short-term relief from dry conditions as stressful weather is expected to return next week. Agritel noted that if rain falls in coming days South American farmers still had opportunities to replant with other crops, but these would have lower yields than earlier sowings.
EU wheat and barley are still uncompetitive on global export markets despite the euro's recent weakness, Germany's largest grain trading house Toepfer International said on Wednesday. A surge of international grains purchase tenders on Wednesday saw wheat purchases by Jordan, durum and barley by Tunisia, wheat by Qatar and wheat for food aid by the United Nations.
"I do not think the EU got any of the business on Wednesday apart from possibly part of the Tunisian durum," one trader said. "Brazilian wheat was unusually offered to Jordan, showing the heated competition in the international grains market." In Germany, prices were little changed but retaining recent premiums over Paris with business winding down ahead of the Christmas break.
Standard new crop bread-quality wheat for January delivery in Hamburg was offered for sale unchanged on late Tuesday levels at 195 euros a tonne with buyers around 194 euros. But prices were increasingly difficult to assess with buyers starting to concentrate on closing their books before the Christmas and new year holiday break. "Expectations of some short covering by exporters and unwillingness by farmers and regional traders to sell at current low prices are supporting," one German trader said. "There is talk some old wheat export business still needs to be covered with ships to be loaded in January."
Hamburg milling wheat selling prices remained around 7 to 10 euros above Paris futures as farmers retained produce in the belief 2012 supplies will be tight after Germany's disappointing 2011 wheat harvest. The return of water levels on the Rhine and Danube rivers was making transport easier after vessels had been sailing only partly loaded since early November, and traders were still organising shipments of delayed loads.
But inland shipping costs remain above normal levels as vessel positioning was still suffering from the impact of the low water disruption, traders said. In major wheat importer Spain, physical wheat lined up with recent gains on international markets as volumes thinned ahead of the festive season. Prompt feed wheat in the country's most important grains port of Tarragona were up 4 euros from Tuesday to 205 euros a tonne, while January-March delivery gained 6 euros to 202 euros. "There is a lot of uncertainty in the market and demand for cereals is low," a Spanish dealer said.