July 26, 2010

US wheat prices hold onto gains

The best hope for wheat prices holding onto their gains may lie in corn, which is placed for a "significant rally" thanks to tighter US supplies, the Canadian Wheat Board (CWB) has said.

US corn stocks were "approaching critical" levels in being forecast to end 2010-11 at 1.37 billion bushels, the grain marketing giant said.

Indeed, US corn supplies were tighter than four years ago, when they proved a major catalyst for the 2007-08 grains complex rally. The board added that US corn supply-and-demand balance may yet provide momentum for a sustainable rally in wheat.

Without corn, wheat prices could face downward pressure, the CWB said, noting that crop woes in Canada, the EU and Russia looked likely to be largely offset by a bumper harvest in the US.

The forecast of 1.09 billion bushels for America's wheat inventories at the end of 2010-11 most likely represents the largest free stocks, as in stocks accumulated without benefit of direct government incentive, of all time, the board said.

Even given the declining fortunes of Russia and Kazakhstan, world ending stocks will decline by less than 10% and remain historically high at more than 175 million tonnes, the board said.

Furthermore, the cash attracted into grain markets, and which had bid the wheat markets beyond the current fundamental, was in part "floating" money.

Separately, Rabobank said it was switching its price outlook from a neutral to bullish bias for 2010-11, citing the threat of further crop downgrades.

Meanwhile, wheat prices made further gains in Europe on Friday, with Paris's November lot closing up EUR1.00 at EUR178.75 a tonne, and its London equivalent edging GBP0.25 higher to GBP132.75 a tonne.

However, US markets were mixed, with Chicago's September contract settling 0.25 cents lower at US$5.96 ¼ a bushel thanks to a late decline blamed on profit taking.