Wheat tumbled nearly 5% in Paris as investors gave their first reaction to Russia's decision lift its grain export ban, forecasting that this year's harvest will be "quite good".
Paris's best-traded November lot hit E239.25 a tonne in early deals in response to Saturday's decision by Russia, renowned as a fierce competitor on prices, to lift from July 1 export curbs imposed in August, as the country's worst drought on record devastated crops.
Russia could export up to 20m tonnes of grain, if the harvest reaches its potential of 85m-90m tonnes, the Russian Grain Union, an industry lobby group, said on Monday.
As a further reason for caution, rain fell on some northern European areas, where a dearth of rainfall has helped spur a revival over the past two weeks.
"Germany has seen some rain these last few days and the three day forecast shows rain on the charts for south eastern UK, Germany and France," Jaime Nolan at broker FC Stone's Dublin office said.
Toepfer International said that showers this month had prevented yields in German grain crops falling below average levels, especially in the north of the country.
'Uncertainties remain large'
However, Toepfer, Germany's largest grain trading house, nonetheless forecast a drop to 22.8m-23.3m tonnes, from 24m tonnes, in the country's wheat harvest, the European Union's second biggest after France's.
The barley crop will fall to 9.0m-9.5m tonnes, from 10.4m tonnes, with rapeseed output set to fall to 4.4m-4.8m tonnes, from 5.7m tonnes - a decline of potentially more than 20% - reflecting irreversible damage from dry weather.
And Mr Nolan urged caution over the impact of the current rains. "It should be noted that areas across north western France will miss out and that the predicted rainfall is not very heavy across most parts," he said.
And Agritel, the Paris-based consultancy, said that the lifting of Russia's grain export ban had been "already relatively well integrated" into prices, having been the talk of the market for the last month or so.
"It should therefore have a limited impact on the market as uncertainties remain large yet."
Paris's November wheat contract had recovered some ground to stand at E242.&5 a tonne in lunchtime deals, down 3.1% on the day. Rapeseed, which was not covered by Russia's export ban, was E0.25 lower at E493.75 a tonne, on track for what would be its first fall in 12 trading days.
US markets are closed for the Memorial Day holiday, with London trading also shut for a bank holiday.
'Satisfactory condition'
Russia's decision to lift its export ban follows an improvement in prospects for spring sowings, after a late start to summer caused one of the slowest starts on record, with plantings now at 24m hectares, some 10% higher than a year ago.
Furthermore, rates of cold weather damage during the winter were relatively low.
"The condition of the winter crop is satisfactory and we believe that this year the grain harvest will be quite good," Russian deputy prime minister Viktor Zubkov said.
Russia expects to harvest 85m-90m tonnes of grain this year, up from 61m tonnes last year, if below the bumper crops of 97m tonnes in 2009 and 108m tonnes in 2008.
'Ever-greater stocks'
The lifting of the curbs also follows lobbying from grain traders alleged to have built up hefty stocks at ports in anticipation of a resumption in trade.
"It's clearly in the interest of Russian traders and farm bodies to talk of ever-greater stocks blocking up the silos as harvest approaches in order to get the ban lifted," a report from a leading European commodities house on Friday said.
However, the politics of the situation are clouded by the prospect of parliamentary elections in 2012, and a presdential vote in 2012, leading some observers to predict the government faces a difficult balancing act between keeping the agricultural lobby onside, but keeping food price inflation in check.
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