September 3, 2010

Wheat prices hit fresh highs on Russian export fears

Wheat prices in Paris set a fresh two-year high after the drought in Russia was set to extend its four-month ban on grain exports to more than a year.

Russia's Prime Minister Vladimir Putin noted that the lifting of the export ban can only be considered after next year's crops have been harvested.

With the harvest of late-combined crops such as corn not completed until potentially November, the comment implied a considerable extension to export curbs which were initially set to lapse at the end of this year. The restrictions took effect three weeks ago.

Paris wheat for November delivery closed up 0.9% at EUR229.50 a tonne, the best finish for a near-term contract since April 2008. While London feed wheat for November finished 1.0% higher at GBP156.00 a tonne.

In Chicago, wheat for September was 1.5% higher at US$6.85½ a bushel, with the better-traded December lot rising 1.2% to US$7.17¼ a bushel.

Putin's comments followed an assessment from Russia's farm minister Yelena Skrynnik that the country was on course for a strong rebound in grain production next year, to 85-90 million tonnes, although a figure well below 2008 and 2009 highs.

However, there are some doubts that the winter grains sowings target will be met, even though rains have reached many drought-hit areas since Viktor Zubkov, Russia's deputy prime minister, forecast last month that such plantings would fall to 12 million tonnes.

The removal of Russia, the third biggest wheat shipping country in 2009-10, from the export market for prolonged period is likely to increase the demand for supplies the US-the one major wheat trading nation to enjoy a bumper harvest.

Official data on Thursday (Sep 2) showed US weekly export sales at 1.02 million tonnes, marginally down on last week's figure, but ahead of trade expectations of about 700,000-900,000 tonnes.

Analysts believe that the shortage of wheat in some traditional exporting countries-Russia will probably also be dependent on wheat imports-should lead to a further reduction in high US wheat stocks and therefore support prices.

Germany, the EU's second ranked wheat producer, could be reliant on wheat imports to a large degree this year for the first time in a decade, analysts said, noting Tuesday's reports that a German miller had turned to the US for 20,000 tonnes of high protein US spring wheat.