Wheat Falls as Traders Assess Supply Situation



Wall Street Journal

CHICAGO—U.S. wheat futures ended lower, stumbling late as traders grappled with uncertainty about world supplies.

At the Chicago Board of Trade, wheat for September delivery ended down 13¼ cents, or 1.8{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4}, at $7.12½ a bushel, while CBOT December closed down 11½ cents at $7.43¾.

The market swung back and forth between gains and losses throughout the day, as market participants awaited fresh information on Russian supplies and possible export restrictions by countries that have suffered crop damage.

The day’s move extended a retreat from the two-year highs set last week following news that Russia, a major producer and exporter of the grain, would halt exports. The market appears to have digested news of the Russian wheat ban as supplies remain ample in other major producing countries that can step in to fill the void created by Russia’s problems.

Wheat prices have gained about 60{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} over the past two months, a move that spurred concerns about increased costs for food producers and consumers alike.

Traders noted uncertainty about the extent of the Russian losses. Sid Love, analyst with Kropf & Love Consulting, said that even if Russian exports are curtailed dramatically, it isn’t clear to what extent the U.S. has the infrastructure to meet the demand.

Still, any downward move in wheat prices will likely be constricted by the continued lack of clarity about the outlook for supply from Russia and elsewhere in the region, said Shawn McCambridge, senior grains analyst with Prudential Bache in Chicago. He noted that some market participants expect Kazakhstan and Ukraine could follow Russia’s lead and restrict exports.

The uncertainty in the market is allowing futures to hold near the top end of a two-year range, while attempting to correct from overbought conditions, floor traders added. The price volatility has spurred record trading on the Chicago Board of Trade.

CBOT-parent CME Group Inc. said Monday that 316,053 wheat futures contracts were traded on Friday, surpassing the previous record—set in early 2008—by more than 50,000 contracts.

Last Thursday, Russian Prime Minister Vladimir Putin announced a ban on grain exports that is set to take effect Aug. 15 and run through year’s end. On Monday, Mr. Putin said that the ban won’t be lifted in the near future, according to the Interfax news agency.

So far, other producers in the region haven’t announced plans to curtail exports, though Ukraine has imposed stringent quality inspection rules for wheat exports that are delaying shipments and causing cancellation of deals.

In Kazakhstan, the state-run agricultural trading company said that the country’s export obligations will be fulfilled this year. The agriculture ministry said that there are no restrictions on grain exports and that the country would likely direct its exports to the Russian market.

Meanwhile, uncertainty continues to surround Russian exports, as there is speculation that Russia may accommodate purchases made by Egypt, the world’s biggest wheat importer, while restricting exports to others, said Mr. McCambridge.

The crop problems in the Black Sea region have led to a steady reduction in global wheat production estimates. Germany-based analytical firm F.O. Licht said it expects 2010-11 global wheat production of 645.71 million tons, down 1.6{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} from its July estimate as Russia’s wheat crop is projected to be 28{4d08edaf359bc2115b18a651716ebd427a137946ddca2143fa23b3ea721061e4} lower than a year ago.

Source: Wall Street Journal



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