EU grain markets firm as Brussels prepares to grant export refunds

EUROPEAN GRAIN markets have firmed slightly after news that Brussels is about to start granting export refunds for 2m tonnes of wheat for sale to the world market.

The Commission is taking tenders from grain exporters today (Friday) and will adjudicate on them next Thursday (Feb 3). It is the first time refunds have been granted for wheat since June 2003.

The move follows weeks of pressure from French and east European growers, in particular, who have been finding it increasingly hard to shift this season’s bumper harvest on to an over-supplied world market.

As a result, large tonnages have been flowing into intervention. Latest figures show total grain stocks have climbed from 3.6m tonnes at the start of the season to 5.3m tonnes, with a further 5.1m tonnes “under offer”. About 3.7m tonnes of wheat is either in store or under offer.

Faced with the long-term cost of large stocks, the Commission has now opted for the cheaper alternative of granting refunds. “EU exporters are having increasing difficulties competing on the world market because of the recent fall in the value of the dollar,” added a spokesman.

Market response to the announcement was initially positive, with the French MATIF climbing about 1.5 off the contract lows of 105.5/t (73.80) for May futures, while London firmed a more modest 50p/t.

But the real key will be what volume of tenders the Commission accepts and at what level of refund, says Home-Grown Cereals Authority economist Julian Bell. “My guess is they will want to do enough to keep grain out of intervention, but they will not want to boost market prices too much.”

EU wheat is having to compete with Argentinean grain, which is about $10/t (5.30) cheaper delivered to north Africa. The refund will have to narrow that gap to be effective.

James Maw, of trader Glencore Grain, believes the refunds will prove most attractive to French and German shippers. “There has been some speculative selling to north Africa at below replacement cost in anticipation of refunds. Now the refunds are there, they will be looking to execute these sales with a small profit.”

EU farm body COPA welcomed the commission’s decision to help the market through export refunds, but expressed concern at the breakdown of the Hungarian intervention system, which was contributing to lower prices.

EU agriculture commissioner Mariann Fischer Boel told farm ministers in Brussels this week that the commission was looking at ways of enabling countries with storage problems to use spare capacity in other member states.