August 2, 2010

Wheat futures went up to the highest price since 2008 on forecast that a drought in Russia may force the country to cut exports, squeezing global supplies and boosting US demand.

The September-delivery contract jumped as much as 2.7% to US$6.795 a bushel on the CBOT, the highest level since October 1 that year. Russian authorities have been battling a heat wave that has scorched farmland and ignited wildfires.

"It's very, very bullish and there's no sign of it really stopping. I wouldn't be surprised if it reaches US$7 within the next two trading sessions," Peter McGuire, managing director at CWA Global Markets Pty., said.

Wheat futures traded at US$6.7925 a bushel at 1:58 p.m. in Singapore, while soy, rice and corn also climbed. According to the USDA, Russia shipped 17.5 million tonnes of wheat in the 2009-2010 season, accounting for about 14% of global trade.

Wheat futures have surged from this year's low of US$4.255 a bushel on June 9 on concern that the drought in Russia and other parts of Europe, including France, combined with excessive rains in Canada, will curb global supply. World wheat stockpiles may decline 2.5% to 192 million tonnes by June 2011 as the "prolonged dry weather" hurts the outlook for crops in Russia, Kazakhstan, Ukraine and the European Union, the International Grains Council said on July 29, reversing a June forecast for higher inventories.

Russia's wheat harvest may amount to 45 million tonnes, Anton Shaparin, a spokesman for the Moscow-based Russian Grain Union, said on July 27. That compares with a harvest of about 62 million tonnes last year. Moscow has broken several heat records this season, while the drought has scorched more than 10 million hectares (24.71 million acres) of cropland. Temperatures of at least 36 degrees Celsius (96.8 degrees Fahrenheit) are forecast for the capital in the coming week, according to Gidromettsentr, the state weather service. Prime Minister Vladimir Putin is due to meet regional leaders in Moscow today to discuss the wild fires.

The wheat harvest in Canada may drop 17% to 15.6 million tonnes this year from a year earlier, after unusually wet weather prevented seeding in some areas, the Canadian Wheat Board said July 30. According to US Commodity Futures Trading Commission data, net-long positions in wheat futures, or the difference between bets on price gains and price declines, more than tripled to 7,212 contracts in the week to July 27.