December 22, 2010

CBOT and European wheat firm after strong gains

CBOT wheat prices were firm on Tuesday (Dec 21) with the US futures trading close to a 19-week top hit in the last session on concerns over supplies next year.

Corn edged higher as hot weather and limited rainfall in Argentina fuelled worries about crop prospects in the world's second-largest corn exporter. Chicago Board of Trade March wheat ticked 0.16% higher to US$7.70-3/4 a bushel after matching on Monday (Dec 20), a 19-week high of US$7.76-1/2 posted last week.

January milling wheat futures in Paris were up EUR0.25 to EUR241.25 a tonne following the US markets. CBOT corn for March delivery added 0.5% to US$6.02-1/2 a bushel, while soy for January rose 0.23% to US$13.18-1/4 a bushel. US wheat is on track to post its first annual gain in three years after dropping 42% in the past two years.

Wheat got a boost this year from a drought which decimated the Russian crop and halted exports, and rains which reduced the quality of Australian wheat. Dry weather in parts of the US Plains also raised concerns about the winter wheat crop as is enters dormancy. Renewed talk that Russia may prolong its grain export ban beyond next July was also supportive as US exports would benefit. Still, farmers in Australia are making some progress as the dry weather has given them opportunity to seed up harvest, although quality remains an issue.

"The focus is on harvest in Australia and certainly there has been some progress," said an analyst. "There is some significant amount of quality downgrade but the amount of that downgrade to feed quality is less than what the market had feared," he said.

Corn and soy futures are closing in on their second straight year of gains, with the latest round of support coming from poor rains in Argentina. Much-needed weekend rains in Argentina fell short in some areas, putting pollinating corn and recently planted soy at risk of lower yields.

10% of the Argentine corn crop had pollinated, 30% was in the process of pollinating, and 50% was set to begin the process in about two weeks, said another analyst.

The corn market also remains underpinned by Friday's estimates of lower acreage in 2011 by Informa Economics. The analytical firm lowered its forecast of US corn plantings for 2011 and added acres to its soy forecast, citing rising projected returns for new-crop soy.