September 20, 2010

 

EU and US wheat prices soar amid corn surge above US$5

 

 

Wheat prices jumped in both Europe and the US, hitting their highest level in Paris for more than two years, as corn's surge above US$5 a bushel upped the stakes in the battle for acres for next year's crops.

 

Chicago wheat for December delivery jumped 2.7% to US$7.39 a bushel in early deals on Friday, the third-highest peak for a near-term lot since the start of the grain's rally more than two months ago.

 

Paris's November contract soared 4.0% to EUR238.00 a tonne, the best for a spot contract since April 2008, before coming up against profit-taking. London feed wheat for the same month jumped 2.3% to GBP166.00 a tonne.

 

The rises were attributed by traders largely to a jump in the price of Chicago corn, which jumped above US$5 a bushel for the first time in nearly two years, soaring 3% to hit US$5.11 ¾ a bushel at one point.

 

The fortunes of the crops are in part tied by their inter-changeability in some uses, such as livestock feed, meaning that prices of one of the grains tends to have some knock-on effect on the other.

 

Nonetheless, Rabobank analysts also highlighted that a major battle for acres is building in the US.

 

Wheat prices were offering US growers the second highest pre-planting prices on record for soft red winter wheat, the type traded in Chicago, and the hard red winter variety, as traded in Kansas, meaning that the grain should recover some of the 5.5 million acres lost to other crops in the last two seasons.

 

However, with the US corn balance sheet forecast to reach one of its tightest levels on record, corn prices are going to have to ensure additional plantings next season, the bank said.

 

Meanwhile, wheat is looking a less attractive alternative than it was at its August peak, when it was worth nearly twice as much as corn, per bushel. The premium has halved, to 44%.

 

In Europe, wheat is fighting for farmers' attention with barley - whose stocks in the region are set to plunge by 70% to their lowest in at least a decade, according to US estimates - and rapeseed, of which there is a global shortage.

 

Rabobank pegged a cut of 1.5 bushels per acre, to 161 bushels per acre; while in the USDA's yield estimates it reported a forecast of a 160-bushels-per-acre figure.

 

Once above the US$5-a-bushel hurdle, the grain was likely to have triggered a barrage of automatic buy orders placed on expectations of easier price gains ahead, a UK trader said.