Tale of Two Wheat Crops Cutting Paris Premium: Chart of the Day

May 14, 2014 7:01 pm ET

May 15 (Bloomberg) -- While wheat wilts in the U.S. Great Plains, improved crop prospects in Europe signal prices in Paris may drop relative to Chicago.

The CHART OF THE DAY shows that November milling wheat futures in Paris were 6.21 euros ($8.51) a metric ton more expensive than the December contract in Chicago last week, the narrowest premium since November 2013. Dry weather in the Great Plains means the U.S. benchmark may become more expensive than the French price in the next few weeks, said Arnaud Saulais, a broker at Starsupply Commodity Brokers in Nyon, Switzerland.

Wheat has rallied 14 percent this year on the Chicago Board of Trade as U.S. government data showed 30 percent of winter crops were in top condition as of May 11, deteriorating from 62 percent at the end of November. In France, the biggest European wheat producer, 73 percent of crops were rated good or excellent as of May 5, FranceAgriMer data show. Paris wheat prices have dropped about 1.6 percent this year.

“The U.S. situation is still bullish because the expectations are not very good for crops,” Saulais said in a telephone interview May 13. “The ratings in Europe are very good, and probably that’s why the prices are going down.”

Wheat production in the 28-country European Union may climb to a six-year high of 144.9 million tons in the 2014-15 harvest that starts in July, the U.S. Department of Agriculture estimated last week. At the same time, U.S. output will drop 7.8 percent to 53.4 million tons, the lowest since 2006, it said. The EU is the world’s biggest wheat grower, and the USDA expects the bloc to overtake the U.S. as the top exporter in 2014-15.

In France, “overall conditions are good” for developing crops and wheat yields may be higher than last year, even as northeastern areas of the country saw dry weather last month, the EU’s Monitoring Agricultural Resources unit said May 12. Crops in Germany, the second-biggest EU wheat grower, benefited from rain at the beginning of May, and conditions have been favorable for plant growth in Poland and the U.K., MARS said.