November 10, 2011


EU wheat prices drop over 3% on USDA forecast



The milling wheat futures of Europe pulled back over 3% as Wednesday's (Nov 9) USDA report painted a more bearish outlook for the wheat market worldwide.


At 1415 GMT, Paris milling wheat futures for November delivery were down EUR6.75 (US$9.14) or 3.3% at EUR196/tonne (US$265.3), after the contract hit an intraday high of EUR214/tonne (US$289.66).


The USDA announced increases to its world wheat production outlook for the 2011-12 crop year to 683.30 million tonnes – that compares with 681.20 million tonnes a month earlier.


The body revised up its projection for Kazakhstan wheat production during the 2011-12 crop year; the country is expected to reap 21 million tonnes of wheat. Last month, the USDA pegged Kazakhstan's wheat output at 19 million tonnes.


Kazakhstan was the only former soviet nation that saw wheat production estimates lift.


Meanwhile, the USDA kept unchanged its outlook for Russia and Ukraine at 56 million tonnes and 22 million tonnes, respectively. Still, Russian wheat exports for this crop year were increased by one million tonnes to 19 million tonnes, as forecasted by Commerzbank.


Although the USDA trimmed its forecast for US corn production again, the bullish outlook was not reflected in higher prices because market participants had already priced in the anticipation of declines, a London-based grains broker said.


On Wednesday, the USDA cut its US corn production forecasts for the 2011-12 crop year to 12.31 billion bushels.


The new corn production forecast is a drop from the 12.433 billion bushels that USDA predicted in October and the 12.497 billion bushels in September, according to the crop report.


Morgan Stanley analysts predicted that US corn production for the 2011-12 year would hit 12.4 billion bushels.


Still, Brenda Sullivan, analyst at Sucden Financial in London said that European markets have experienced volatility throughout all of Wednesday's trading session ahead of front-month contact expiry, as dealers finalise positions.


Sullivan said that wheat has seen an extreme selloff after investor short-covering helped the market to close sharply higher Tuesday.


She adds that market participants have to close out positions unless they want to accept delivery, with the physical element of the wheat trade resulting in a more volatile rollover than cash-settled instruments.


A broker added that Wednesday's front-month losses were a combination of volatility ahead of expiry as well as a more bearish outlook for Europe's wheat market.

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