High-flying wheat poised for more gains?


The following is an article from Reuters:

Grains Week Ahead-High-flying wheat poised for more gains?

By K.T. Arasu CHICAGO, July 18

* Europe, U.S. Midwest weather key factors

* Can wheat add to gains?

* Corn going through pollination

* High heat forecast for Midwest this week

The weather in Europe and the Midwestern United States will once again take center stage this week — and all eyes will be on wheat, which rallied 12 percent last week amid concerns over the dry weather in the Black Sea region.

Soft red winter wheat futures Wc1 at the Chicago Board of Trade have surged $1.62 per bushel, or a whopping 38 percent, from a June low of $4.25-1/2, and analysts wonder if it can go higher.

“Wheat has been moving vertically. There is a chance that it could stall very quickly,” said grains analyst Don Roose of U.S. Commodities in West Des Moines, Iowa.

He said a continued bullish run in wheat will depend on how much of the wheat crop in Europe is lost.

Russia, a leading wheat exporter that has captured some markets that traditionally bought from the United States, is experiencing a severe drought that is decimating the crop.

Agricultural analysts SovEcon on Friday cut its forecast for the 2010 Russian grain crop to below 75 million tonnes,from 77 million to 81 million tonnes. It pegged the wheat crop at 49 million to 51 million tonnes, down from 61.7 million tonnes last year.

The Russian Grain Union, an industry lobby, said the drought was the country’s worst in 130 years.

The sharp rally in CBOT wheat futures was distorting its price spread with CBOT corn and soybeans, creating a situation that could lead to a correction.

The wheat-corn spread was the widest last week since June 2009, at $2.03-3/4 cents. The wheat-soybean spread was the narrowest last week since March 2009.

“The wheat-corn spread is stretched out,” Roose said.


The weather in the Midwest will be a crucial trading factor for CBOT corn and soybean futures this week.

Nearly half of the corn crop is pollinating, a key

development stage when yields are determined. The soybean crop goes through its critical pod-setting stage in August.

Concerns over the crops have been heightened by forecasts for high heat in the Midwest this week.

Crop analyst Michael Cordonnier of Soybean and Corn Advisor in Hinsdale, Illinois, said he was expecting the condition ratings for corn and soybeans to edge down slightly in the U.S. Department of Agriculture’s crop progress report on Monday.

“I expect them to go down 1 to 2 (percentage) points because of the heat,” he said, adding an estimated 15 percent of the area planted with corn saturated by incessant rain last month are at risk of lower yields.

He said 20 percent of the soybean area was in a similar situation. Cordonnier, however, said improved growing conditions could help to recoup some of the yield loss.

The USDA said this month farmers were expected to plant nearly 88 million acres with corn, and 79 million acres with soybeans.


Economist Bill Nelson of Doane Advisory Service said the weak dollar and Chinese demand for corn and soybeans will also be factors that would drive the market this week.

“We’ll be watching out for how much more corn and soybeans China will buy,” he said, alluding to China’s strong imports of U.S. soybeans and additional purchases of U.S. corn.

He said the weak dollar could provide support to grains, as it sharpens export competitiveness, but added the weather was the wild card.

“Corn will be going through its key reproductive state (this week),” he added.


Source:  Reuters

Posted by Haylie Shipp


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