Wheat prices extend rally as crop fears ratchet up

22nd Jun 2012, by Agrimoney
Wheat prices extended their rally on both sides of the Atlantic, closing in London at their highest in nearly three months, as reports on crops from Argentina to Russia chipped away at production hopes.

Wheat for July stood 2.0% higher in late deals in Chicago, taking gains this week above 10%, while in London the best-traded November lot ended up 1.1% at £161.55 a tonne, the highest finish since late March.

The gains came amid a fresh round of downbeat reports on world crops, including the tumbling condition of spring grains in the major Canadian producing province of Saskatchewan, where some parts received four inches of rain in a week.

In Argentina, where farmers are being deterred from the grain by export restrictions, the government overnight forecast wheat sowings at 3.82m hectares, the lowest area for decades.

The country, even on a harvested basis, has not seen a lower area since 1970-71, when farmers reaped 3.70m hectares, according to US Department of Agriculture data.

'Low yields'

Meanwhile, a string of reports from the former Soviet Union reported disappointing yields from early harvest of winter grains.

In Russia's drought-hit Rostov region, local farm officials reported grain yields of 1-1.3 tonnes per hectare in eastern areas, although on southern farms, where heat has had less of an impact, results were coming in at 3.2-3.4 tonnes per hectare.

In Ukraine, initial harvest had shown "low yields" of about 2 tonnes per hectare, Agritel said, adding that the national crop looked like coming "lower than 8m tonnes, close to 7.7m tonnes" compared with 9m tonnes last year.

A European commodities house with significant Black Sea agricultural interests noted an unnamed Ukrainian company reporting a yield of "1.6 tonnes per hectare rather than the 4.3 tonnes of last year".

"Quality is also disappointing with low specific weights and talk of disease and insect damaged grains."

German upgrade

The European Union offered some better production news, with grain trader Toepfer International raising to 22.71m tonnes, from 21.49m tonnes, its forecast for the German crop.

That put a small rise in production from last year's 22.70m-tonne crop on the cards, besides topping a 22.5m-tonne estimate from Strategie Grains last week, and a 21.3m-tonne forecast from farmers.

In France, FranceAgriMer kept at 73% its estimate of the domestic soft wheat crop, the EU's biggest, rated in "good" or "excellent" condition, up from 27% a year ago, when the country suffered an unusually dry spring.

"That's not going to tip the needle much against everything else going on," a UK grain trader told Agrimoney.com.

"There's not a panic on. But buyers are being made to work that bit harder."