August 31, 2010

Asian wheat prices to notch up

Asia's wheat prices are seen to move higher this week amid weather concerns and ongoing strong demand for feed grades from Europe, trading executives and analysts said Monday (Aug 30).

Analysts said if dry weather in Australia and Argentina is prolonged and Russia turns a net importer of wheat, prices could even test US$10 a bushel in the next few months.

"With Ukraine closing the tap for wheat, availability has been reduced sharply, and many exporters continue to try getting supply from central Europe," said an executive at a global trading company.

He said the nearby September futures contract on the CBOT is likely to test US$6.8-$7/bushel this week. The contract ended at US$6.6250/bushel Friday. It had hit a two-year high of US$8.41 in the first week of August.

The recent price hikes is disturbing normal trade due to contract cancellations and a shift in origin away from the Black Sea to the US and Europe, said Abdolreza Abbassian, secretary of the Intergovernmental Group for Grains under the UN's FAO. He said prices will remain relatively high around current levels for the rest of the year.

There is also fresh speculation over Russia turning a net importer of grain and the prospects of their winter plantings. Around 60% of Russia's grain harvest is over and the next two weeks will be very crucial to determine the eventual size of the Russian crop. There is no reason to be bearish, considering the adverse weather and tight supply, said Chris Vanhonacker, a Geneva-based exporter and analyst.

If Russia has to import a large volume of grain from outside its neighbouring countries and Pakistan's wheat plantings are delayed by floods, then prices may again get a boost towards US$8/bushel, said Vanhonacker. He said the possibility of CBOT wheat futures moving into double-digits this year can't be ruled out.

However, Abbassian said currently there aren't any strong indicators pointing towards Russia becoming a significant importer of grains and most of its purchases from overseas will be barley and corn.

Most traders and analysts expect the nearby wheat futures contract on the CBOT to move mostly between US$6.50-$7.50 for the rest of the year but also add that it will jump towards US$10/bushel if the wheat crop in the Southern Hemisphere is affected.

Analysts said there are further concerns over the dry weather in the Southern Hemisphere countries such as Australia and Argentina.