February 6, 2009

Wheat prices are likely to continue to fall after ending the week mostly lower, as global supply continues to overwhelm demand.

On the Chicago Board of Trade, wheat contracts ended in positive territory Thursday after four consecutive sessions of losses.

While some U.S. analysts feel that a drought in areas of China's wheat belt could offer short-term support to global wheat prices, a report by the Commonwealth Bank of Australia said that seemed unlikely.

Chinese authorities are projecting a drop of only 2%-5% in wheat output because much of the affected area has access to irrigation, the bank said. The country also large wheat stocks which it could use to cover any local shortfall.

Meanwhile, a report by U.S. Wheat Associates, or USW, a farmers' lobby, said that contrary to the belief of many U.S. growers, it's the global oversupply of wheat and not the strong U.S. dollar which is the culprit for relatively weak export performance of U.S. wheat.

"We have a record crop (globally), with much of that coming from U.S. wheat export competitors," said Vince Peterson, USW vice-president for Overseas Operations.

When the U.S. dollar was weak in the February-August 2008 period, CBOT wheat futures actually declined dramatically, but in the mid-December 2008-mid-January 2009 period, wheat futures rose despite a stronger dollar, USW said. In deals this week, South Korean feedbuyers were very active. Two major South Korean feed buying associations, the Major Feedmill Group and the Korea Feed Association, bought a total 165,000 metric tonnes of corn in separate private deals at prices ranging from US$198.55-US$201.55 a tonne.

Another major South Korean feed buying company, Nonghyup Feed Inc., bought 110,000 tonnes of corn at a premium of US$1.35/bushel to the CBOT May contract.