June 27, 2012


EU wheat futures continue to rise on dry US weather


Buoyed by a rally in US grains on concerns over further stress to crops from heat and dryness in the US Midwest, European wheat futures continued to climb on Tuesday (June 26), scoring a new one-year high.


November milling wheat on the Paris futures market gained EUR1.25 (US$1.56) or 0.6% to EUR226.25 (US$283) a tonne by 1558 GMT, after touching a new one-year high on the contract of EUR228.75 (US$286) a tonne.


US corn futures were headed for their biggest two-day rally in two years on Tuesday (June 26) as unrelenting heat and dryness in the US Midwest threatened daily damage to what was initially expected to be a record harvest.


Euronext brokers noted that sellers on the futures market were mainly growers trying to benefit from the surge in prices while buyers tended to be financial players, which boosted the rise in prices.


"We are in a typical weather market. We are following forecasts as often as we can," one trader said, noting that these sometimes changed rapidly with forecasts now pointing to dry and hot weather in the US Plains against wetter conditions that had been predicted recently.


Activity continued strong on European milling wheat futures with more than 38,000 lots exchanged by 1600 GMT. On Monday it recorded its highest daily volume since it began trading, with 48,198 lots.


In London, November feed wheat was stable at GBP168.00 (US$263). The London contract had risen as much as 10% from last week's low of GBP153.75 (US$240) to reach GBP169.00 (US$264) on Monday and again on Tuesday.


New-crop corn futures in Chicago shot up by the daily maximum US$0.40 in the previous session, pulling wheat higher, as hot, dry conditions expected this week threatened to add to stress on Midwest crops. In addition to spill over support from corn, wheat has also been supported by similar concerns over hot, dry weather in the Black Sea region this spring.


A sharp cut to the supply outlook of the Russian government and leading analyst SovEcon fuelled Monday's market surge, raising the prospect of less ample supply next season from one of the world's top wheat exporters.


But rain is expected in Russia's key southern agricultural regions in the coming days, the state weather forecaster and an analyst said on Tuesday (June 26), while some European traders said Monday's (June 25) forecasts of a wheat crop below 50 million tonnes were too pessimistic at this stage.


Traders said the focus would remain on the US crop outlook and that weather risks there were preventing a significant pullback on grain markets.


"We had huge volumes Monday (June 25). There was a real drive upwards on the back of US weather. It wouldn't surprise me if when the US wakes up we start to creep back up again," a London dealer said.


Tunisia's state grains agency is tendering to buy five cargoes of 25,000 tonnes each of soft wheat from optional origins for shipment in August and September, traders said on Tuesday (June 25).

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