June 20, 2013

 

 

After China was said to be back in wheat-buying mode, grain prices extended gains, with wheat rising 2% to regain US$7 a bushel in Chicago, with Informa Economics and Lanworth chipping in with crop downgrades too.

 

Chicago wheat for July soared nearly 3% at one point, helping the new crop December corn lot extend its rally too to 5% over the last three sessions. The gains followed talk that China had purchased 200,000 tonnes of wheat from France, rumoured to be for delivery between August and October.

 

"That seems to be what is behind the rise," said Dustin Johnson at Illinois-based broker EHedger.

 

While the purchase by China of French wheat, an unusual trade, was viewed by many traders as underlining the non-competitiveness of US wheat, typically a preferred destination for Chinese buyers, the deal was seen potentially setting the scene for further deals.

 

In May, China was said to be looking for two to three million tonnes of wheat for state inventories. Chinese buyers have separately been rumoured to be interested in US purchases, talk enhanced by Chicago wheat's fall below US$7 a bushel to levels which have previously whetted their interest.

 

As a further support for wheat prices, Lanworth cut by nearly 1.3 million tonnes, to 693.0 million tonnes, its forecast for world wheat production in 2013-14, with a downgrade to the nascent Ukrainian harvest offsetting upgrades to some other origins, including Australia.

 

"Historically-high May temperatures will hold production well below the recent high of the 2008-09 season of 25.9 million tonnes," Lanworth said, pegging the crop at 19.1 million tonnes. "Outlooks indicate continued warm and dry conditions through late June."

 

The Australian wheat crop was upgraded to 24.9 million tonnes, after "recent and expected increases in June precipitation in key production areas of the eastern and southern wheat regions reduced the likelihood of lowered plantings and yield".

 

Lanworth also cut its estimate for the world corn harvest by 4.2 million tonnes to 961.0 million tonnes, reflecting a cut of 4.3 million tonnes to 346.0 million tonnes (13.8 billion bushels) in the forecast for the US crop, the world's biggest.

 

The downgrade reflected a cut of 800,000 acres to 95.3 million acres in the forecast for US sowings, a figure some two million acres below the USDA estimate, which stands to be upgraded by a much-anticipated plantings report on June 28.

 

Lanworth pegged the yield at 158.8 bushels acre, a figure higher than the USDA forecast, as "widespread above average precipitation continues to lower the probability of extreme drought in western production areas".

 

The consultancy, which uses satellite imagery to a large part in its forecasts, acknowledged that the wet weather "raises the probability of yield loss in eastern production areas should high precipitation continue during June- August".

 

The revisions came shortly before analysis group Informa Economics also cut its forecast for US corn acres, by 1.57 million acres, also to 95.3 million acres. It also cut its estimate for spring wheat plantings, excluding durum, by 610,000 acres to 11.8m acres. The forecast for soy acres was cut by 530,000 acres to 77.8 million acres.