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Wheat extends recovery on export optimism

John Walter 08/17/2012 @ 4:36pm

U.S. wheat futures end higher Friday, rebounding from prior losses for the third consecutive day on optimism for U.S. export demand.

Chicago Board of Trade futures for September delivery settled 12 3/4 cents, or 1.5%, higher at $8.74 1/2 a bushel. Kansas City Board of Trade September wheat ended up 13 cents, or 1.5%, at $8.85 1/2 a bushel. MGEX September wheat finished 6 cents, or 0.7%, higher at $9.27 1/2 a bushel.

Wheat futures were supported by speculation that reduced wheat production in the Black Sea region, particularly from Russia, could restrict exports from the area and increase demand for U.S. wheat.

"Traders are pricing in the possibility of export demand for U.S. wheat," said Shawn McCambridge, senior grains analyst with Jefferies Bache in Chicago.

Reduced production from the Black Sea area will limit exportable supplies from the region, making higher-quality U.S. wheat more attractive once sales from Russia slow, Mr. McCambridge said.

Moscow-based consultancy SovEcon reported Thursday that Russian wheat stocks had slumped to their lowest levels in nine years.

Russia is booking sales very aggressively, and based on tighter inventories, analysts are worried it may deplete its inventories faster than expected.

But wheat futures ended lower for the week, as lagging U.S. export demand and ample U.S. supplies limited upward price movement. "The market still has to turn export potential into reality, as U.S. wheat remains overpriced in comparison to other world wheat exporters," Mr. McCambridge added.

Otherwise, the advances were aided by chart-based buying associated with traders buying wheat futures to take advantage of low prices after futures declined early in the week.

Separately, soybean futures ended higher, supported by a tight supply outlook and the uncertainty of U.S. crop potential. Soybeans have a strong demand base even at high price levels, and until the market shows some signs of rationing demand, investors aren't willing to give up on bullish market bets, said Chad Henderson, president of advisory firm Prime Ag Consultants in Brookfield, Wis.

U.S. soybean inventories are estimated to shrink to extremely tight levels in 2013, and with the risk of U.S. production declining due to a historic drought, investors are maintaining bets on prices moving higher.

CBOT November soybeans ended up 20 1/2 cents, or 1.3%, to 16.45 3/4 a bushel.

Corn futures ended mostly unchanged but down for the week. The market has found a comfort zone, Mr. McCambridge said. The market is range-bound, with market participants content with current prices until crop production is solidified by harvest results, Mr. McCambridge added.

But price advances remain limited, as current prices are choking off domestic and export demand.

CBOT December corn settled down 1/4 cent, or 0.03%, at $8.07 1/4.

-Write to Andrew Johnson Jr. at andrew.johnsonjr@dowjones.com

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