April 19, 2011

 

Global wheat prices rocket as dryness threats rise

Wheat futures worldwide surged more than 3% in Paris, and 4% in Chicago, despite the fears of US debt which sank many other markets and as weather fears prompted investors to reinject a risk premium into prices.

 

A range of assets sold off after Standard & Poor's cut to "negative", from "stable", its outlook for its rating on US sovereign debt, signalling that a downgrade may be on the way.

 

However, grains-with gold, a safe haven in times of global uncertainty ?showed substantial gains after weather forecasts over the weekend removed a forecast of rain for America's hard red winter wheat districts in the southern Plains, where grain ratings have suffered from a dearth of moisture.

 

"That's what started it, the idea that [the southern Plains] will not after all get rain on April 19-20," said David Tallentis at WxRisk.com.

 

While some models were now predicting rain for April 22-23, a series of wrong forecasts meant "people are getting pretty sceptical".

 

Furthermore, the forecast for northern Europe, where a lack of moisture is raising growing concerns for crops the region's four main grain-producing countries, including France, Germany, Poland and the UK, "still looks pretty dry".

 

"China is seeing problems too, especially in the north east. There are all sorts of problems all around the world."

 

Wheat for May closed 3.3% higher at EUR24 (US$34.16) a tonne in Paris and, at 16:45 GMT, stood 4.5% higher at US$7.78 a bushel in Chicago, regaining most of its losses of last week.

 

In Kansas, where the hard red winter variety of wheat is traded, the May lot added 4.2% to return back over US$9, to US$9.02 a bushel.

 

"If we did not have these negative outside market force, we would probably be limit up in wheat," Mike Mawdsley at Iowa-based Market 1 said. In Chicago, the maximum daily rise would take the grain to US$8.04 a bushel.

 

Meanwhile, forecasts remain wet for major US corn districts, and are expected to land up to five inches of rain on some areas over the next week, hampering the spring sowing campaign.

 

"It is too early to say we have a problem. But it is not looking good for much of the Corn Belt," Mawdsley said.

 

However much progress US farmers had made in sowings, which will be revealed later by weekly official US crop progress data, "I do not see it being added to much by next Monday (Apr 25) around here", he added.