June 7, 2011


CBOT grain markets on edge following French, Chinese drought



The most active July corn and wheat futures in CBOT are expected to trade this week in ranges of US$7.40-US$7.75 a bushel and US$7.50-US$8.00 per bushel, around current prices near YS$7.52 per bushel and US$7.68 per bushel, respectively, due to prolonged drought in France and China.


The French drought in particular will affect the prices of soft wheat as France is world's largest soft wheat producer which is used for making in pastries and snack foods. Soft wheat is also used in livestock feed, and livestock farmers have also felt the impact of lower yields.


France is experiencing the driest spring in 50 years and the extent of wheat yield lost to the drought is yet to be officially announced as experts said it is not possible to know the loss of yield at this stage.


The French government had provided several hundred million euros in aid for those whose crops have been hardest hit by the drought.


Wheat prices have been particularly volatile in recent months and the benchmark wheat price rose to a high of EUR242 (US$353) a tonne last week, although this is still short of the three-year peak of EUR281 (US$410) per tonne reached in February.


In its latest agricultural commodity market report, Rabobank said that Russia's decision to end its wheat export ban on July 1 could help to ease the supply situation.


Meanwhile, a prolonged drought in China could hit grains output in key growing regions, further squeezing global supplies and putting upward pressure on prices, analysts said. However, plentiful domestic wheat stocks will act as a cushion and keep import volumes low, they added.


They warned that the both French and Chinese scenarios put global wheat markets in a humdinger and any further supply shocks in the grain markets would fuel a further rally in US corn and wheat futures, already stoked by harsh crop weather in the US and Europe.

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