August 17, 2010

US wheat futures fell amid Russian rain forecast

US wheat futures fell Monday (Aug 16) to their lowest levels in more than two weeks as traders learned of the Russian rain forecast and resulted in high wheat prices.

Traders said that wheat's decline also gained momentum from rumours that Russia would honour its sales to Egypt and that Ukraine would introduce export quotas. Either development would ease concerns about Black Sea supplies and grain movement.

Corn and soy futures gave up earlier gains on spillover pressure from wheat, with nearby corn falling for the first time in four sessions. Front-month soy lost ground for the fourth time in six sessions.

Wheat futures on the CBOT plunged 5.5% to the lowest intra-day price since July 30. Traders locked in profits, after a forecast of rain in northern Russia, even though the longer-range forecast for the weekend and next week in its growing areas looked dry, said Rich Nelson, director of research at Allendale Inc.

"We're already running into harvest in a lot of those drought areas now so the impact of further heat and dryness, if it does return, is probably minimised. The damage is already done," Nelson said.

The Russian weather forecasting service said rains from Monday to Wednesday are unlikely to soften crop damage but may improve conditions for winter grain sowing.

Nearby Chicago wheat is down 21% from its two-year high of US$8.41 on August 6, but is still up nearly 60% from early June.

Wheat futures prices "will be back and forth until we get more clarity out of Russia. We've reached a plateau on Russia and everyone knows the crop has been hurt, now we need to know where the demand is going," said Joe Bedore, CBOT floor manager for trade house FC Stone.

The worst drought in more than a century in Russia has prompted authorities to suspend grain exports through the end of the year. Analysts downgraded Russia's total grain crop to between 59.5 million and 63.5 million tonnes, down from a previous forecast of 70 million-75 million.

US and EU wheat have already seen spillover demand as shipments dwindle from Russia and other Black Sea exporters, and US wheat last week recorded its biggest weekly export volume in nearly three years.