October 21, 2008

Australia's wheat futures still unsettled after massive selldown


It is too early to say if prices of wheat futures have reached near-bottom levels and would soon stablise in the aftermath of a savage selldown in Australia's most active wheat futures contract - ASX January , said an analyst.


The contract fell a little Tuesday after a modest negative lead Monday from the US.


At 0600 GMT, ASX January wheat last traded at AUS$273.00 a tonne, down AUS$4.50 from Monday's close, holding above AUS$270 after dipping briefly below it last week.


This is compared to an intraday peak of AUS$392 two months ago.

Sentiment is more optimistic than a week ago, but everyone is still cautious and the Australian wheat market is still being pushed by US.


People also looking at outside markets to gauge where sentiment is heading, he said.


One such indicator would be the Dow Jones Industrial (Average) which has not been used this manner in the past as it mainly tracked performances of general companies, not commodities.


Global economic data in the past few days is weak and still points toward hard economic times ahead for developed countries, while weaker than expected growth in China will be bearish, he said.


The question is whether this downside risk in global growth and demand has already been factored into prices, and some might say a lot of it has been, he said.


However, the Australian wheat market is traditionally weak ahead of the harvest, which will gather pace in the coming weeks and will be completed by year end.


AWB Ltd and GrainCorp Ltd, two largest Australian grain companies, have both this week already cited some harvest pressure on wheat prices.


People are likely to remain cautious in the present climate until crops are harvested in areas where there is genuine concern about production, such as in southern New South Wales in about a month, he said.

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