March 12, 2008

Asia Grains Outlook on Wednesday: Wheat likely to rise on bullish factors

Wheat prices are likely to rise further during the rest of this week following a strong, limit-up rebound on the Chicago Board of Trade Tuesday after the U.S. government reported that domestic ending stocks were tighter than a month ago.

Most-active CBOT May wheat closed limit-up, or 60 cents higher, at US$12.23 per bushel. Kansas City Board of Trade May wheat rose the 60-cent limit to US$12.61, while Minneapolis Grain Exchange May wheat surged the expanded limit of 90 cents to US$14.36 1/2.

"Wheat's gains will lend strength to the rest of the grains complex as well," said an analyst based in Singapore.

According to a Barclays Capital research report, the recent backpedaling in soft commodities prices was probably "simply a breather before further speculative and fund flows plough into the softs," rather than a case of "the market reawakening to the importance of prices being in equilibrium with fundamentals."

In the case of grains, fundamentals remain firm as the U.S. Department of Agriculture lowered its forecast for 2007-08 U.S. wheat ending stocks to 242 million bushels from its forecast of 272 million in February - at the low end of analysts' pre-report estimates.

Export restrictions in Russia, Ukraine, Argentina and China, which prevent traders from bringing more wheat onto the market, are also likely to support prices, said a report by F.O. Licht Commodity Analysis.

Within China, wheat supply in the market increased as state reserve enterprises started selling old wheat to make room for the arrival of newly-harvested wheat from May. Farmers also speeded up sales, as they need cash to prepare for spring planting. But prices remain firm on government auctions regulating supply.