Premiums for higher-quality wheat in France jumped on Monday as heavy weekend rain added to fears that this year's harvest in the European Union's top producer and exporter will be spoiled by poor quality. Farmers in eastern France have reported alarming quality indications for wheat, blamed on repeated rainfall in early July in the run-up to harvesting. After a dry spell last week, storms across France at the weekend brought as much as 50 mm of rain in some areas.
On the French cash market on Monday the spread between animal-feed wheat and milling wheat was at an unusually wide level of around 30 euros a tonne, close to levels seen during the poor quality harvest of 2007, brokers said. Cash premiums for milling wheat against benchmark Paris wheat futures were between zero and 8 euros a tonne, a rise of up to 4 euros from Friday, brokers said.
"The market is becoming more and more complicated with such a mixed bag of quality," one French broker said. "It's a race to find milling wheat between millers and exporters." The increasing risk that a large portion of the 2014 crop will be graded as feed wheat was leading to cancellation of contracts and fresh deals being struck to cover quality needs, brokers said.
A swathe of northeast France from the outskirts of Paris to the German border via Burgundy was worst affected, with brokers citing 30 percent germinated grain and low Hagberg readings. Germination can lead to wheat being downgraded to animal-feed quality when it exceeds 2 percent of volume, as can low Hagberg falling numbers, another measure of milling quality.
The French wheat harvest was still in its early stages after rain delays, with about a quarter of the crop cut, traders said. Worries over poor harvest quality led some French buyers to turn to the German market. "We have seen some French purchase interest in Hamburg today apparently with German wheat being taken as a hedge against quality losses caused by rain in France," a German trader said. Problems over crop quality could also lead to renewed debate over delivery of grain traded on the Euronext futures market.
The Senalia export silo at the northern port of Rouen, which was previously the sole delivery point for Euronext wheat, caused controversy two years ago by imposing additional quality requirements after a rain-affected harvest. Euronext's November contract will have a second delivery point at Rouen, the Socomac silo, but traders said the fact it does not currently set its own criteria like Senalia could create confusion over the quality of wheat delivered against Euronext futures.
