July 7, 2011

Asian wheat prices may be boosted by US weather

Traders are watching the weather in the US Midwest, as wet and hot conditions threaten to delay the spring wheat harvest this year and push bellwether Chicago futures around 9% higher to their highest level in a week.

"I've been watching the weather forecast, and if wet weather continues, wheat will test further upside in the next week," Kaname Gokon, a research deputy general manager at Tokyo-based commodity brokerage Okato Shoji Co., said.

Scattered showers and thundershowers that have hit the Midwest recently could delay fieldwork, and September wheat on the Chicago Board of Trade could test US$6.90 a bushel next week if poor weather persists, Gokon said.

CBOT September wheat futures jumped 23 1/4 cents, or 3.8%, Tuesday (Jul 6) to US$6.35 1/2 a bushel as projections for increased foreign demand fueled a recovery from steep losses last week. The contract last topped US$6.90 a bushel intraday on June 29.

Surprisingly high estimates by the USDA for existing corn supplies and corn acreage weighed heavily on prices last week, and dragged wheat along for the ride, as both grains are used for animal feed.

But Singapore-based brokerage Phillip Futures said this week will be marked by fresh interest in grains due to the selloff, "especially so when many industry analysts believe the USDA likely overestimated acreage and stocks data."

The brokerage said in a weekly report that despite the USDA's upward revision for US corn acreage to 92.3 million acres from an earlier estimate of 90.7 million acres - and an increase by the International Grains Council in its global corn output projection by 15 million tonnes to 858 million tonnes - global corn inventories are still 15% lower from a year earlier.

Corn prices are expected to move sideways, but traders are also keeping an eye on a USDA supply-demand report due next week.

"If there are no surprises, we can expect December CBOT corn to move around the US$6.20-a-bushel level," compared with an overnight close at US$6.12 1/2 a bushel, Gokon said.