July 1, 2009

Wheat prices are expected to fall further on a combination of fund liquidation and ample wheat supplies over the long term, Macquarie Bank said Tuesday (June 30).

"The recent wheat rally was based on shaky foundations from the outset and now with the US harvest progressing well and with large amounts of wheat entering the pipeline it is difficult to be anything but bearish on the wheat markets," the Sydney, Australia-based financial institution added.

Fund buying pushed wheat prices higher between the end of April and early June, but fund liquidation of long positions has reversed those gains, Macquarie added.

"The market is now focused on finding a bottom."

Globally, wheat harvest difficulties in the US, Canada, Argentina and Europe are being compensated to some extent by better harvest outlooks in Australia and North Africa.

Overall, wheat stocks from previous years combined with the potential for the second largest crop in history (after last year's bumper crop) should keep supplies surging well ahead of demand in 2009-10, Macquarie said.

Macquarie expects global 2009-10 wheat production to fall 5 percent to 651.4 million tonnes compared with 653 million tonnes last month and the US Department of Agriculture's current forecast of 656 million tonnes. Macquarie expects lower wheat output in the US, Canada, and European Union in 2009-10.