February 2, 2012

 

CBOT wheat prices to increase to US$7/bushel

 

 

Due to frost damage to crop in the Black Sea region and Russia's export tax imposition possibility, near-month wheat futures on the Chicago Board of Trade may rise to US$7/bushel or higher, analysts and trading executives said Wednesday (Feb 1).

 

After being subdued for several months due to ample supply from the Black Sea region and Australia, wheat prices have started to rise and the near-month March contract is now trading at around US$6.75/bushel. Those price gains should continue, analysts said.

 

Wheat is now the market leader in the grain complex and its premium to corn is set to widen, Koname Gokon, the Tokyo-based deputy general manager at Okato Shoji Co. said.

 

The next level of technical resistance for CBOT March wheat contract is the US$6.8850/bushel, but prices can touch US$7/bushel if supply from Russia falls or becomes more costly, Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom, said.

 

Russia, which had banned wheat exports for a year in August 2010, is again becoming a key market determinant, Paul Deane, a Melbourne-based agricultural economist with ANZ Banking Group said in a research note.

 

Since lifting its ban on exports in July, Russia has become one of the world's top wheat exporter alongside the US and Australia. The USDA has forecast Russia's wheat exports at 19.50 million tonnes in the marketing year ending June 30 this year from a total output of 56 million tonnes.

 

As many importers worldwide make a beeline to purchase Russian wheat, the country's government is considering a proposal to impose export taxes to prevent a large fall in the local stockpile. Russia is planning to impose tariffs on exports after a certain level, though that level isn't clear yet, according to analysts.

 

If Russian wheat export prices rise, exporters in other countries, such as Australia and France, may follow suit, said a Singapore-based executive with a global commodities trading company.

 

Within the grains futures complex, many traders are selling wheat to buy corn, to take advantage of the spreads between the two commodities. Corn traded at a premium to wheat several times in 2011, starting in April, for the first time in 16 years. Since then, corn prices have again slipped and the near-month March contract is trading at a US$0.30/bushel discount to wheat.