August 4, 2003
Suspension Of Wheat Exports By EU Could Lead To Extended Rally Of Global Wheat Prices
Global wheat futures prices could extend their rallies when trading resumes in northern hemisphere markets later Monday, according to Australian analysts.
Underpinning the upward pressure on prices is a tight global supply/demand balance, heightened by the impact of a drought in parts of Europe, they said.
Wheat futures at the Chicago Board of Trade rallied last week amid price-friendly weather forecasts for certain production areas of the world.
Friday, the Chicago Board of Trade's September wheat contract extended Thursday's 9.25 cents rally to settle 2.5 cents higher at $3.51 a bushel.
The rally followed news the European Commission rejected all tenders to export wheat and indefinitely suspended European Union export licenses.
The suspension of E.U. export licenses is an effort to conserve supplies in the E.U. because old-crop supplies are tight and the new crop is suffering from drought.
Australian analyst Malcolm Bartholomaeus said the last time this E.U. action occurred was in 1995 and it triggered a jump in global wheat prices.
"Now that we are looking at reduced levels of exports or a slower rate of exports out of the E.U., that is really leaving the U.S. as the only immediate source of export wheat of any volume in the world between now and when our own crops start to come in, and the Canadian crops become available," he said.
"So there is this further upside pressure on the U.S. benchmark pricing," he said in an interview on an Australian Broadcasting country hour radio program.
"We should expect the upward trend in prices that is established to continue for some time at least," he said.
Bartholomaeus's comments follows those by Tobin Gorey, an economist at Commonwealth Bank of Australia, who late Friday attributed the recent rally in wheat futures to a tight supply/demand balance in the market, with global wheat inventories at low levels.
"Relative to demand, inventories haven't been this low since the early 1970s," he said a market review that noted ongoing poor news about European crops.
Specifically, it cited a drought and fierce summer temperatures in Europe that will cut grain output.
Gorey said some in the wheat futures market might want to sell some positions now, given the recent rally, but not all.
"There is the risk prices will go higher yet, so keep some powder dry," he warned.