Wheat gaining market support
Untimely rains and dry weather in parts of the U.S. and delays in export shipments due to port congestion in Brazil will likely provide support to grain prices this quarter, a top economist at a United Nations-linked body said.
"We must bear in mind that there is still a drought in the U.S., which along with logistical issues in South America, will make prices volatile," Helen Henton, chief economist of the London-based International Grains Council, told Dow Jones Newswires late Monday in an interview.
North and southeast Asian countries import around 30% of globally traded corn and wheat annually, or more than 70 million metric tons valued at over $22 billion. These countries are dependent on the U.S. and South America for supply, and any increase in prices pushes up not only their food import bill but also inflation.
Near-month May corn futures on the Chicago Board of Trade hit a one-month high during Asian hours Tuesday at levels above $6.90 a bushel, narrowing corn's discount to wheat. CBOT May wheat futures also extended overnight gains and at 0450 GMT were trading 2 cents higher at $7.1175 per bushel.
More than half the U.S. is still under some degree of drought, Ms. Henton said, adding that this has hampered development of the wheat crop that will be harvested in a few weeks. According to U.S. government data, only a third of the U.S. winter wheat crop is in good or excellent condition, the lowest amount for this time of the year since 1996.
Even though U.S. wheat plantings are higher this year, the overall harvested area is forecast to fall by 4%, indicating that a large area that was planted will be abandoned, Ms. Henton said. Wheat output in the U.S., the world's largest exporter, is forecast to fall 9% in the next marketing year that begins Wednesday.
Less supply from the U.S. will be offset by a rebound in output in Russia and European Union countries, where the crop was damaged by drought last year, she said. However, the premium which high-protein wheat commands over other grades will be supported due to lower U.S. output, she noted.
Rain and cold weather have also delayed spring crop plantings in the U.S. Midwest and Europe. Only 5% of this year's U.S. corn crop has been planted so far -- the slowest pace on record -- compared with an average one-third during this time of the year.
"These are still early days and things can improve, but corn inventories are tight due to last year's drought, and if there are further delays, farmers will turn to planting soybeans instead," Ms. Henton said. U.S. corn inventories are forecast to hit a 17-year low when the marketing year ends August 31.
If corn stocks aren't replenished on time, it will change trade flows, and importers will seek more grain from South America, where many ports are still clogged with ships waiting for berthing and loading that runs into several weeks, Ms. Henton said.