June 29, 2011

 

European wheat prices jump

 

 

European wheat prices recovered from Monday's (Jun 27) three-month lows by soaring 4% on Tuesday (Jun 28) due to technical purchases and fears of drought approaching eastwards to the Black Sea.

 

Paris November milling wheat surged EUR7.50 (US$10.76), or 4%, to hit an intraday high of EUR195/tonne (US$279.76) after slumping Monday to its lowest point since mid-March at EUR187/tonne (US$268.28). At 1456 GMT, it was trading up 3.3% at EUR193.75/tonne (US$277.96).

 

Traders said the immediate move has been sparked by an influx of fund money after the recent fall in prices that left markets oversold and gains in other commodities markets, such as metals and oil, boosted appetite for riskier assets. At Monday's low, prices had lost more than 25% from their May highs.

 

In US markets, financial investors liquidated the most positions in a single week since mid-March, the latest data from the Commodity Futures Trading Commission show. For Chicago wheat, speculators were net short 32,000 contracts as at June 21, a level not seen since November 2010.

 

Dealers said buyers are covering their positions ahead of the USDA's crop report on acreage and supply, due Thursday (Jun 29). The USDA's spring wheat condition ratings reported the portion of the crop rated good to excellent fell three percentage points to 69%.

 

"The funds have come back in," said a Switzerland-based trader. "This will continue for several days now because they will find the arguments to push higher after the big fall."

 

Others pointed to growing fears that a repeat of the drought that devastated Russia's harvest in 2010 could again damage crops this year, while heavy rainfall could hurt the quality of Ukraine's crop.

 

June's slump was partially triggered by fears of an influx of cheap Black Sea wheat when Russia lifts its export ban Friday (Jun 24), so any downgrade there would have a big impact on sentiment despite ongoing concerns about the size of the European and US harvest.

 

The worst drought in decades has already hit wheat crops in Western Europe's largest producers France, Germany and the UK, with yields expected to drop 15% in some places despite some rainfall over the past fortnight.

 

Forecasters are now predicting that precipitation levels could fall to as low as 25% of the average for this time of year across much of European Russia in the week from June 28 to July 5, cutting soil moisture levels sharply.

 

Climatologist Natalia Ryazanov, a professor at the State University of Management, said that there is a quite large chance of a repeat of last year. Traders said the next eight-to-10 days will be crucial for determining the size of the crop.

 

In neighbouring Ukraine, however, heavy rainfall is now threatening the quality of the harvest.

 

"It is less the quantity but rather the quality of what will be harvested which is in question," said a trader.

 

Still, forecasters are expecting a large harvest in Russia. Respected Moscow-based forecaster SovEcon this week said it expects the harvest at between 82 million and 86 million tonnes.