EU wheat ends volatile 2015 with market focus on competition, weather

By Sybille de La Hamaide

PARIS (Reuters) - European wheat prices traded near four-month lows on Thursday, as traders expected fierce competition globally next year, after a volatile first semester marked by an initial plunge on prospects of hefty supplies that was only partly recovered.

The focus for the next six months will likely be on competition from Argentina, where devaluation of the peso and the scrapping of an export tax are spurring exports, and on the euro/dollar exchange rate.

Other factors included floods in the United States and a risk of frost damage in Europe.

Paris-based European milling wheat front-month futures dropped 31 percent in the first months of the July-June campaign, to hit a five-year low of 143.00 euros per tonne on Sept. 7, due to prospects of plentiful global supplies.

Prices pared part of their losses in the next two months, buoyed by a weak euro making it more competitive on dollar-based world markets and a rebound in Chicago, but fell back to hit a four-month low of 172.75 euros on the March contract due to an expected slowdown in exports.

It was trading at 174.25 euros by 1100 GMT, down 13 percent for the front-month contract since start of 2015.

In a sign that measures by the new Argentine government will allow the Latin American country to take over some markets from west European exporters, Egypt bought wheat from Argentina in its latest tender, overlooking next-best offers of French wheat.

"Argentina will clearly be one of the key thorns in our side in the coming months," one European trader said. "But we could see some support from a weather market, if you see what is happening in the U.S. and the threats to the EU and Black Sea crops."

Abnormally mild weather in most of Europe and major wheat producers around the Black Sea in recent months has led to a lack of snow cover, leaving winter crops vulnerable to a cold snap seen hitting Russia as soon as this week.

Forecasts do not point to a severe frosts in western Europe yet, but atmospheric indexes are indicating greater chances for frigid conditions during January and February.

Snow cover provides insulation to the soil and the plant's root system, while snow melt can be a vital source of moisture once spring arrives.

Analysts say soil moisture in the northern hemisphere is generally sufficient, but moisture deficits are near record lows in major producers Ukraine, Russia, and parts of eastern Europe.

(Editing by David Holmes)