May 22, 2012

 

Asian wheat prices likely to augment on dry weather

 

 

Following sentiments that dry weather will affect harvests in Europe and the US and hurt plantings in Australia, Asian wheat prices will likely extend a recent rally on the back of the said concerns.

 

Near-month wheat futures on the Chicago Board of Trade rose as much as 3.8% to an eight-and-a-half-month high of US$7.22 a bushel Monday (May 21), putting the contract more than 20% higher than its week-ago settlement.

 

Wheat is the market leader and the most bullish among agricultural commodities, said Kaname Gokon, Tokyo-based deputy general manager at Okato Shoji Co.

 

"Many speculators have gone long on wheat or covered their shorts, probably keeping in mind the devastating Russian drought of 2010," said a Singapore-based executive with a global commodity trading company.

 

However, with prices rising to levels not seen since early September, some investors have taken profits. At 1106 GMT, the contract was trading around US$6.9325/bushel. Traders said prices will likely regain the US$7/bushel level and keep rising over the next few days--unless the weather in affected wheat areas improves.

 

Although stockpiles are ample given that winter wheat is being harvested in the US and Russia over the next few months, there's concern because of a shortage of rain, said an importer in Tokyo. Traders have described the situation on futures exchanges as a "weather market."

 

Talk of a "sukhovey" weather event is a possibility in Russia, ANZ Banking Group said in a research note.

 

A sukhovey originates over the steppes of Kazahkstan, where dry air combined with high winds and temperatures move down onto Russian crops, sapping wheat yields. In 2010, prices moved above US$8.40/bushel following a serious drought in Russia.

 

The CBOT July contract may test US$7.30/bushel this week, said Hiroyuki Kikukawa, general manager for research at Nihon Unicom in Japan.

 

Near-month CBOT corn is now trading at US$0.55/bushel discount to wheat. In the cash market, feed wheat was for more than a year selling at a wide discount to corn.

 

Last week, Philippine buyers purchased three cargoes of Australian feed wheat totalling 162,000 tonnes around US$271-272/tonne, cost and freight, for September-October shipment. South Korean feed millers purchased optional-origin corn for end-December arrival at US$259.50/tonne, C&F, traders said.