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Wheat worries spur grains higher

05/16/2012 @ 3:44pm

U.S. wheat futures closed at two-week highs Wednesday, climbing on worries about crops in the U.S. and abroad.

CBOT July wheat ended 30 1/4 cents or 4.9% higher at $6.38 3/4 a bushel, KCBT July wheat rose 28 1/2 cents or 4.5% to $6.56, and MGEX July wheat jumped 9 1/2 cents to $7.60 a bushel.

"Weather concerns arising from dry conditions for Russian, Australian and U.S. winter wheat in the plains provided the spark to support wheat prices," said Terry Reilly, analyst with Citi in Chicago.

The threat of smaller crop yields from warm, dry weather drawing down soil moisture enticed traders to continue adding risk premium to prices. The rally was an extension of Tuesday's 2% gains, as traders recoup some of the losses incurred over the past two months.

Prior losses were the result of mostly favorable U.S. weather that led to a fast development of the U.S. winter crop. The swiftly maturing crop raised analysts' expectations for a large, early harvest. The large crops were expected to augment already-ample global wheat supplies.

Managed funds had accumulated sizable net short positions, or bets prices would fall, in the market. The sharp rise in prices in the past two days threatened the profitability of those positions. "This led to a vast exit of the shorts, a feature accelerating the spike in prices," Reilly said.

Increased global export business reflected by the announced purchase of 400,000 metric tons of wheat by Iraq that included sales from U.S. provided price support as well, Reilly added.

U.S. corn futures soared in unison with the strength in wheat futures. End users such as livestock feeders are starting to ponder potential yield losses on wheat, a feature undermining the idea of cheaper wheat replacing extremely tight projected corn supplies in feed rations in the summer, said Mike Zuzolo, president of Global Commodity Analytics & Consulting.

Corn prices rallied to cool demand and keep wheat a viable option to help alleviate tight inventories. Strengthening cash-basis levels for corn reflect the tight supply outlook, with announced sales of 900,000 metric tons of U.S. corn to China illustrating the demand push for corn, Zuzolo added.

CBOT July corn closed 22 3/4 cents or 3.8% higher at $6.20 a bushel.

In other markets, soybeans and soymeal rallied on solid demand.

Soybeans for July delivery closed up nine cents to $14.22 a bushel, and July soymeal finished $7.80 higher at $425.00 a short ton.


-By Andrew Johnson Jr., Dow Jones Newswires; 312-347-4604; Andrew.johnsonjr@dowjones.com
(END) Dow Jones Newswires
May 16, 2012 16:01 ET (20:01 GMT)
DJ US GRAIN AND SOY REVIEW: CBOT July Wheat Rises 4.9% On Crop Worries->copyright

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