October 5, 2010

Wheat futures slide as rain may aid Russian crop

Wheat futures fell, capping the longest slump in four months, as rains in Russia and Eastern Europe improved the estimates for winter crops.

Russia got as much as 0.7 inch (1.8 centimetres) of rain last week, and soil moisture may improve with "occasional showers" this week, said Mike Tannura, the president of T-Storm Weather LLC in Chicago. Parts of Ukraine had as much as two inches last week. Wheat futures have jumped 35% since the end of June after drought slashed Russia's output.

"The Russian situation has maybe not gotten a whole lot better, but it hasn't gotten any worse either. They have seen some moisture return there, and it has been somewhat beneficial," said Darrell Holaday, the president of Advanced Market Concepts in Manhattan, Kansas.

Wheat futures for December delivery fell US$0.775, or 1.2%, to settle at US$6.4725 a bushel at 1:15 p.m. on the CBOT. The grain dropped for the sixth straight session, the longest slide since early June. Today, the price touched US$6.435, the lowest level for a most-active contract since July 30.

Last week, futures dropped 9%, the most since January. The price has gained 20% this year after Russia banned grain exports followed the most-severe drought in at least 50 years.

On October 2, Egypt, the world's biggest importer, agreed to buy 240,000 tonnes from France and Canada, shunning supplies from the US.

"My thought has always been that if the US can get half of Egypt's business, then we'll be OK. Every time we don't get half of a tender, that's not good, and certainly negative" for Chicago futures," Holaday said.

Wheat is the fourth biggest US crop, valued at US$10.6 billion in 2009, behind corn, soy and hay, government data show.

Higher corn prices may support wheat, because both are used in livestock feed, said Jason Britt, an analyst at brokerage Central States Commodities Inc. in Kansas City, Missouri. Corn climbed 1.2% today after tumbling 11% last week.

"End-users may think we've reached a little more of a value zone" in corn and wheat, Britt said. "If corn stabilises and starts to pick back up, that's a stabilising force for wheat."