US, Euro Wheat Up as Drought Ravages Aussie Crop

Planetark.org, Sept. 19, 2007

CHICAGO/PARIS - US and European wheat prices rallied on Tuesday as Australia slashed the size of its drought-hit crop by a staggering 31 percent, but gains were pared as some investors cashed out profits.

Futures had jumped to all-time highs this month, both in the United States and Europe, amid the smallest surplus of wheat stocks worldwide in about 30 years. Importing nations have bought relentlessly despite the high prices.

Wheat futures at the Chicago Board of Trade got off to a flying start during overnight hours as major exporter Australia cut its crop estimate to 15.5 million tonnes from 22.5 million in June.

The sharp reduction surprised some traders, who had expected the Australian Bureau of Agricultural and Resource Economics (ABARE) to turn in a conservative downward revision.

But others had expected the Australian wheat crop to be around 15-16 million tonnes, and they saw little reason to push prices up further.

"It started with wheat. We always try to figure out how much bullish news is dialed in. We had a low production number out of ABARE and still had a dry weather forecast... we couldn't react to them," said Don Roose, analyst with US Commodities.

CBOT December wheat was down 1-1/2 cents at US$8.73-1/2per bushel after hitting an overnight high of US$8.98.

In Europe, benchmark November on Euronext milling wheat futures was up 1 euro at 264.50 euros a tonne after rising to a high of 269 euros.

Concerns over the Australian wheat crop had pushed Chicago and European wheat futures to all-time highs. The record high in Chicago was US$9.11-1/4 hit on Sept. 12 and the 300 euros mark in Europe touched on Sept. 5.

Australia is normally the world's No. 2 wheat exporter after the United States.

"Markets can test $9 again amid tight supply and strong demand," said a Seoul-based trader.

But many European traders said the market had already priced in an Australian crop of 15 million tonnes and only a revision below that could push prices back to historic highs.

"The forecast is lower than expected but still above the one we were working on," one European trader said.

STRONG ASIAN DEMAND

On the demand side, the Trading Corporation of Pakistan (TCP) will issue a tender this week to import up to 500,000 tonnes of milling wheat, a senior official said on Tuesday.

The government said last week it had decided to import 1 million tonnes of wheat to maintain a buffer stock.

In Indonesia, a US industry consultant said imports of US wheat could increase 10 percent in 2007/2008 from the previous season because of tight supplies from Australia.

Japan's Ministry of Agriculture said it was looking to buy 115,000 tonnes of milling wheat from the United States and Canada at a regular tender closing on Thursday.

Taiwan's Flour Mills Association will hold a tender on Thursday to buy 88,000 tonnes of US wheat in two shipments between Oct. 22 and Nov. 18.

Two groups of South Korean flour millers will tender on Tuesday to buy 47,700 tonnes of US wheat for shipment between October and December.