Tags: Wheat | Russia | Curbs | high

Wheat Soars 6 Percent to 2-Year High on Russia Curbs

Friday, 06 August 2010 07:30 AM

U.S. wheat futures jumped 6 percent on Friday, taking weekly gains to more than 25 percent as Russia's move to temporarily halt grain shipments sparked a buying frenzy.

Chicago Board of Trade (CBOT) front-month wheat futures have nearly doubled since prices bottomed on June 9 at $4.25-1/2 per bushel as the worst drought on record in Russia, the world's third-largest exporter, destroyed crops.

Russian Prime Minister Vladimir Putin signed an order banning grain and flour exports from Aug. 15 to Dec. 31, with a spokesman saying this would apply to contracts that had been already signed.

"Effectively, a big chunk of the global market is off-line -- there's going to be something like 5 million (metric) tonnes that aren't going to be available for export," said Matthew Kaleel, a commodities specialist at fund manager H3 Global in Sydney.

"What we do know going forward is that demand will increase over time and more importantly supply is coming off as we seem to be getting more and more weather related events." he said.

CBOT wheat for September delivery surged, heading for its daily limit of a 90-cent rise, and striking a fresh 23-month high. The front-month contract is heading for a 25 percent gain for the week.

CBOT sets daily limits to reduce market volatility with a 60-cent limit being hit on Thursday for the first time in two years after Russia said it would temporarily halt grain shipments.

Wheat crops in Kazakhstan and the Ukraine have also been hard hit by drought.

"Speculation is adding fuel to the fundamentals so prices could hit a new upper daily limit," said Benson Wong, a senior adviser at Commodity Broking Services in Sydney.

"It is not an investment market -- it is a speculators' market."

H3 Global's Kaleel disagreed, saying the wheat market was largely being driven by fundamentals.

"When the Russian president talks about not exporting wheat it is such a big issue, it is not about speculators although they are in the market," said Kaleel.

"We're technically speculators because we've been buying wheat in last two or three weeks because the price has been going up but this price rise has been caused by weather," he said.

Kaleel said Russia's next winter wheat crop could also be much lower if dry conditions persisted through to planting time.

Russia's Grain Union, a key industry group, has asked the government to postpone its export ban until Sept. 1, union spokesman Anton Shaparin told Reuters. The ban, announced on Thursday, will take effect on August 15.

Technically the market seems poised for further gains, having broken the 38.2 percent Fibonacci retracement of the 2008 high of $13.33 to the 2010 June 2010 low of $4.25. This came in at $7.79 and sustained gains through this level now have the market eyeing the 50 percent retracement of the move at $8.79.

Wong said U.S. farmers stood to benefit from Russia curbing exports with Egypt, the world's largest wheat importer, already in the market for U.S. supplies.

"I wouldn't be surprised if Russia has already defaulted on some deliveries -- there are so many reasons for the market to go up and if the situation in Russia gets worse, then people will start worrying about the planting of the next winter wheat crop if there's not enough moisture," said Wong.

Trading firms that have sold Russian wheat to millers in Asia are considering declaring force majeure on supply contracts after Moscow slapped on the grain export curbs, traders said.

The ban allows traders to legally renege on current export commitments, effectively forcing the cancellation of an estimated four million to 4.5 million metric tonnes, Rabobank said in a report.

Russia had previously estimated 6 million to 6.5 million tonnes of wheat exports booked for 2010/11 delivery, of which 2.5 million tonnes have probably been shipped.

Rabobank downgraded its Russian wheat production to 45 million tonnes, 15.8 million tonnes or 25 percent below 2009/10 production.

Some market estimates indicate final production might fall as low as 42 million tonnes.

While stocks globally remain sufficient to offset the production downgrades in Russia, Kazakhstan and Ukraine, global trade flows were set to be severely disrupted, affecting the balance sheets of major exporters, Rabobank said.

August soybeans futures slipped on Friday on profit-taking after being dragged up by wheat's surge.

Soybeans for August delivery fell 0.81 percent to $10.46-½ per bushel was crop weather in the U.S. Midwest points to a bumper U.S. harvest while U.S. cash markets remain tight. For the week August soybeans for a near six percent fall.

Corn for September delivery also rose, heading for a 4 percent rise for the week on prospects of more demand for livestock feed as wheat gets too expensive.

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U.S. wheat futures jumped 6 percent on Friday, taking weekly gains to more than 25 percent as Russia's move to temporarily halt grain shipments sparked a buying frenzy. Chicago Board of Trade (CBOT) front-month wheat futures have nearly doubled since prices bottomed on...
Friday, 06 August 2010 07:30 AM
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