August 11, 2010

Asian wheat buyers wary amid market volatility

Asian wheat traders were reluctant to commit to deals on Tuesday (Aug 10), as Australian cash prices eased following two straight sessions of decline in Chicago futures from two-year highs.

Buyers awaited the next update on Black Sea wheat crops and reaction from global suppliers, while analysts said the near 70% surge in wheat prices from June lows is unlikely to have a lasting impact on food inflation.

"When I look at the damage expected out of the Black Sea as a result of the drought it doesn't seem as significant as first thought," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

"Last week the market jumped out of bed on fear and fund involvement - I don't think the drop in production warrants the 66% move up (from June's low of US$4.25) that we have had," he added.

US wheat futures reversed early losses to post modest gains in Asian trade as the market consolidated after around a 10% drop in prices since Friday (Aug 6).

Wheat prices touched a two-year high on Friday on worries about a severe drought and export restrictions in the Black Sea region, but tumbled after investors considered the rally overdone and cashed in on their profits.

Australian cash prices have fallen around 15% since Friday following losses in the futures market, but traders said supplies were tight.

"There was some panic after cancellation of deals but now people have become very cautious seeing the prices fall," said one Singapore-based trader. "Buyers are checking offers and looking at the deals. No one seems to be in a hurry to place orders as there is a feeling that prices will come down further."