July 13, 2010

Asian traders see more downside for wheat prices

Wheat prices are likely to see more downside after crop data issued by the USDA posted a larger-than-expected upward revision to US production forecasts, according to traders and analysts in Asia.

The USDA in their monthly supply-demand report pegged all-wheat production at 2.216 billion bushels for the 2010-11 marketing year, up from 2.067 billion bushels estimated in June.

The data contributed to a decline in wheat futures on the Chicago Board of Trade; prices were already seen to have been overdone as they leaped to multi-month highs last week. The gains were partly due to concerns that hot, dry weather will reduce production in Russia and Europe.

September wheat on the Chicago Board of Trade tumbled 10 1/2 cents, or 1.9%, at US$5.38 a bushel Friday (Jul 9).

"I expect some downward correction in prices this week; prices were gaining most of last week as investors were covering their short positions and this should be mostly done by now," said a wheat trader in Seoul. "Fundamentally, there is a rise in supply so we expect the market to come down a little, up to about 20 cents lower for the September contract."

"The news of the improved yields in southern Great Plains is likely to overshadow the persistent dryness in Europe. As the wheat prices continue to hover around the overbought region, the bearish fundamentals are likely to weigh on the price as well," Singapore-based Philip Futures said in a research note.

However, the downside for wheat prices could be limited, said some traders.

"Given the concerns over the weather in Europe, I wouldn't be too bearish on prices; prices are weak but I think the downside is limited," said a trader at an international trading firm in Tokyo.

In the physical market, trade is expected to continue to be relatively slow this week.

"The summer holiday months of July and August (in the northern hemisphere) are dull months for buying, every year," said the trader in Tokyo.