Record US wheat yield limits losses in world crop

 

 

Record US yields have limited the damage to world wheat production caused by weather damage to crops in Canada, Europe and Russia, according to reports, cutting crop estimates by less than investors had expected.

 

The USDA made cuts of totalling 12.6 million tonnes to its forecasts for wheat production in Canada, where crops have sustained heavy flooding damage, and the EU, Kazakhstan and Russia, where weather has been unusually dry.

 

However, the revision was in part made up by higher hopes for the harvest in America, where the USDA saw yields reaching a record 45.9 bushels per acre – 2 bushels per acre higher than its previous estimate.

 

Higher yields for hard red winter wheat, the type traded in Kansas, more than offset lower yields for soft red winter wheat, the variety traded in Chicago, the report said.

 

The USDA also raised its forecast for the Chinese crop, after favourable June weather boosted harvested areas and yields, leaving its overall estimate for world production at 661.1 million tonnes, 7.5 million tonnes below its previous forecast.

 

The revisions fell short of the cut of up to 20 million tonnes that investors had expected, prompting a 2.6% fall, to US$5.20 ¼ a bushel, in the price of Chicago's July contract in midday deals, local time.

 

London and Paris futures fell even further, with the report cutting estimates for the EU crop by less than 1.2 million tonnes, significantly short of the figure that analysts were expecting, given that Romania alone - a minor producer - cut its hopes by 600,000 tonnes on Thursday (July 1).

 

Paris's November contract, the best traded lot, plunged to EUR152.25 a tonne, down 6% on the day, in the immediate aftermath of the report, before recovering to close down 0.9% at EUR161.00 a tonne.

 

London's November lot finished 0.1% higher at GBP119.00 a tonne.

 

Indeed, Rabobank analysts found some reason for investors with long positions to cheer, noting the concentration of crop downgrades in Canada, Kazakhstan and Russia – three major exporting countries.

 

Meanwhile, China, for which crop hopes were raised by 2.5 million tonnes, keeps its wheat for domestic consumption.

 

The USDA reflected America's improving export hopes with a 100-million-bushel increase to 1.0 billion bushels in its estimate for the 2010-11 crop year, which started this month. It also lifted by US$0.20 to US$4.20-5.00 a bushel its expectations for farmgate prices, as tighter world supplies and higher corn prices support wheat values.