Wheat Climbs To Highest Level Since September On Dry Weather

By Luzi Ann Javier - May 21, 2012
Bloomberg
Wheat rallied for a sixth straight session, advancing to the highest level in more than eight months, as dry weather threatens harvests in the U.S. and Russia, two of the world’s three biggest shippers this year.

The July-delivery contract jumped as much as 3.9 percent to $7.22 a bushel on the Chicago Board of Trade, the highest price for the most active contract since Sept. 13. Futures traded at $7.10 at 2:48 p.m. Singapore time, after surging last week by 16.5 percent, the most since the five days ended June 15, 2007.

Before last week’s rally, futures slumped 21 percent in the year through May 11, as farmers collect a record crop around the world, rebuilding stockpiles. That helped cut in April the global food costs, tracked by the United Nations, for the first time in four months. Wheat’s declining trend was reversed after the U.S. Department of Agriculture released its first outlook for the 2012-2013 season on May 10, predicting a smaller global harvest. Supply may drop even further on dry weather in parts of the U.S. and Russia.

“Dry weather in southern Russia and the U.S. Great Plains has sparked significant speculative short covering in the Chicago wheat complex, pushing values sharply higher,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report e-mailed today. Short covering is the purchase of a security to close out bets on price declines.

The crop in the central and south plains in the U.S. may face increasing stress because of drier and warmer weather, while parts of Russia, Ukraine and Kazakhstan may be heading for another extended dry spell, Telvent DTN Inc. said May 18.

Dry Spell

Russia’s total grain harvest may drop 2.7 percent to 91 million metric tons from last month’s forecast of 93.5 million tons because of drought in southern regions, according to the Moscow-based Institute for Agricultural Market Studies.

The next wheat harvest in Russia, the world’s third-largest shipper in 2011-2012, may total 54 million tons because of the drought and total grain output may drop even further if a lack of rain persists in the south, the institute known as Ikar said. That compares with USDA’s forecast of 56 million tons on May 10.

Today is the first day of expanded trading on the exchange which is now open for 21 hours instead of 17 hours.

Corn for July delivery gained as much as 1.4 percent to $6.445 a bushel, extending last week’s advance of 9.4 percent, the biggest weekly gain for the most-active contract since the five days ended May 20, 2011. Futures last traded at $6.425.

Nineteen of 27 analysts surveyed by Bloomberg expect corn prices to gain this week, the highest proportion since March 30. Traders are bullish on concern that hot and dry weather will curb U.S. yields at a time of accelerating demand from China, the second-largest consumer of the grain.

Iowa, Illinois and Indiana, which produce 40 percent of the U.S. crop, are poised for a seventh consecutive month of above- normal temperatures, the most since 1895, T-Storm Weather LLC said last week. U.S. export sales surged 83 percent in the week ended May 10, from a week earlier, USDA data show.

Soybeans for July delivery climbed as much as 1.2 percent to $14.22 a bushel, after ending little changed last week. Futures last traded at $14.1725.