May 25, 2006

 

US wheat price to be supported then fall

 

 

Wheat prices in the US would be supported in the short term but could then face sharp downward pressure as funds exit en masse, according to an analysis issued Thursday (May 25) by Australian wheat exporter AWB Ltd.

 

Michael Vaughan, AWB's grain manager in Australia's New South Wales state, said for now US wheat prices appear to have some decent supporting factors, but this might not prove the case in the medium term.

 

Short-term support comes from good demand via a run of export tenders and uncertainty surrounding US corn and Hard Red Winter wheat crops.

 

Any resolution to these crop factors is unlikely until as late as July, so "grain prices will remain reasonably well supported in the short term," he wrote in a weekly column in The Land farm newspaper.

 

However, medium term factors suggest a sharp price drop is possible, he wrote.

 

Historical supply and demand and price correlations suggest US wheat futures could be trading well above levels that current supply projections would indicate, he wrote.

 

Moreover, funds now hold record positions in wheat futures contracts.

 

"The concern is that if the U.S. has trendline yields or better and the Soft Red Winter wheat crop performs as expected, then the eventual correction will exaggerated by the funds liquidating their huge bought position," he wrote.

 

US wheat futures settled lower Wednesday on speculative long liquidation.

 

CBOT July wheat ended down 8 cents at US$4.11 3/4 a bushel, down from a contract high of US$4.33 hit Tuesday but still up about one third from a December 2005 contract low of US$3.25 1/2.