May 10, 2011

 

CBOT grain prices rebound from steep slide

 

 

CBOT grain prices surged on Monday (May 9) as commodities recovered from heavy selling last week and poor weather threatened global output.

 

Soft red winter wheat shot up 31 cents, or 4.1%, to US$7.90 1/2 a bushel, while corn climbed 21 1/4 cents, or 3.1%, to US$7.07 1/2 a bushel. July is the most-actively traded contract in each market.

 

Soy struggled to keep pace with gains in corn and wheat, as demand for the oilseed is weak. Soy for July delivery ended up 9 cents, or 0.7%, at US$13.35 a bushel.

 

Surging prices for crude oil and precious metals, and weakness in the US dollar rekindled buying interest in the grains amid ideas that last week's declines were overdone. Wheat lost 5% last week and corn sank 9% as broad selling engulfed commodity markets.

 

CBOT wheat led the recovery as concerns increased about dry weather hurting output in the southern US Plains and Europe. In Kansas, the top US producer of bread wheat, temperatures topped 100 degrees during the weekend, adding stress to crops after months of drought.

 

France and Germany also missed out on rains. Forecaster WeatherEdge Ltd. warned that each country may have lost 15-20% of their wheat crops due to weeks of persistent dryness.

 

Paris wheat prices staged a blistering rally on the back of expanding forecasts for global crop losses, lending spillover support to US wheat. The front-month Paris May wheat contract gained 11.6%.

 

Traders are assessing the condition of wheat crops in the Northern Hemisphere ahead of the upcoming harvest. Futures soared last year when harsh weather, including a historic drought in Russia, slashed global output and prices reached 2 1/2-year highs in February on increased demand. They have since pulled back 15% at the CBOT.

 

"Eastern France and Germany are really at risk of substantial wheat-yield falls," said Edward Smith, consultant meteorologist at WeatherEdge.

 

Corn and soy futures felt spillover support from wheat's rally and from gains in external markets. The grains are linked to crude oil because ethanol is made from corn. A weak dollar supports the markets because it makes dollar-denominated commodities more attractive to foreign buyers.

 

Corn traders are keeping an eye on weather, as well. Warmer, drier conditions favor limited fieldwork in the eastern Corn Belt after delays due to excessive rains and cold, although unfavorable precipitation is returning to areas west of the Mississippi River, said Brad Rippey, agricultural meteorologist for the USDA.

 

The government, in a weekly crop progress report on Monday (May 9), estimates that corn plantings are about 30% complete. A week ago, the crop was 13% sown, below the five-year average of 40% for that time of year.