December 29, 2010
CBOT wheat prices reach a two-year high
CBOT wheat prices reached the highest point in more than two years due to a combination of persistent dry conditions in the US plains states and the disclosure of recent purchases by Egypt, the world's largest wheat buyer.
The price of the soft, red winter wheat futures contract for March delivery rose US$0.18 or 2.3%, to US$7.9825 a bushel on CBOT.
It is the highest closing price since August 2008, when grain prices were starting to decrease after a spike brought about by food shortages.
The last time wheat ended at a two-year high was August 5, the day before Russia said it would introduce a ban on grain exports due to a devastating drought.
Wheat prices on Tuesday fell short of the August 6 intraday peak of US$8.41 a bushel.
Russia was supposed to be a big exporter in 2010. Its reversal of fortune took place because of record heat and raging wildfires which set the stage for a decline in global stockpiles.
According to the USDA estimates, there will be 176.7 million tonnes of stored wheat at the end of May 2011, 10% less than a year earlier.
"We are still looking at some general concerns about supplies," said an analyst.
The market's latest concern is about the weather in western Plains states such as Kansas and Oklahoma. These regions account for much of the US crop of hard, red winter wheat, which was sown in the autumn and will be harvested in early summer.
"Moisture will need to increase by spring to prevent significant stress once the crop breaks dormancy," said another analyst.
Winter wheat stops growing when temperatures drop to protect itself from the cold. Development restarts when warm weather returns in the spring.
Traders are on edge about production threats after several exporting nations were plagued by weather problems.
Aside from the drought in Russia, torrential rains damaged crops in Canada and eastern Australia this year. On Tuesday (Dec 28), prices breached US$8 a bushel.
As Egypt is the world's biggest importer of wheat, it has developed a reputation as a savvy buyer. That is why prices jumped on news that the state commodity procurement agency held a tender and ended up agreeing to purchase 60,000 tonnes of US soft, red winter wheat and 120,000 tonnes of Argentine wheat.
Some see the move as a sign that prices could move higher in the coming weeks. Other countries, including Iraq and Turkey, are also seeking wheat, traders said.
The Middle East wheat belt is another region that has struggled with dryness, raising concerns that countries such as Iraq, Syria, and Iran which are already big wheat buyers may become even more reliant on imports.
