wheat futures: biggest 2day gain in 18 years

Wheat Has Biggest Two-Day Gain in 18 Years on Supply Concern

By Jae Hur and Feiwen Rong

Oct. 10 (Bloomberg) -- Wheat prices had the biggest two-day gain in 18 years on concern drought will further cut supply from producers in Australia, the third-largest exporter of the grain.

Prices soared by their daily limit for a second day to 10- year high in Chicago as dry weather reduced harvests in the U.S., India and Europe. There's concern Australia's output may decline below the all-time low of 9.6 million tons in 2002, according to AgRisk Management Pty., a Sydney-based forecaster.

``The drought situation in Australia is getting worse and worse, so it's quite possible we'll get a record low crop this year,'' Brett Stevenson, managing director at AgRisk said today.

Wheat futures for December delivery rose 30 cents, or 6.1 percent, to $5.24 a bushel at 2:49 p.m. Singapore time in after- hours trade on the Chicago Board of Trade, the highest since June 1996. Movements in prices are capped at 30 cents a bushel by the exchange.

The 13 percent gain in wheat from yesterday surpassed a 12 percent advance on Oct. 16, 2002, and was the biggest two-day rise since July 1, 1988, when prices soared 13.3 percent because of a drought in the U.S. Wheat has soared 54 percent in the past year on the Chicago Board of Trade.

``In 2002, the crop in Western Australia was still better than the crop there this year,'' Stevenson said. ``If we get some good rain in late October to November, it might benefit crops in those region and see the crop size reach above 10 million tons if we are optimistic.''

Wheat prices in South Africa rose by their daily limit to a four-year high. The contract for December delivery surged by 45 rand, or 2.4 percent, to 1,947 rand ($248.58) a ton on the South African Futures Exchange today. In Paris, wheat futures for May delivery rose 6 euros, or 3.7 percent, to 167 euros at 10:03 a.m. on the Euronext.liffe. Prices jumped 3.2 percent yesterday.

Crop Damage

Expectations that the U.S. Department of Agriculture will lower its estimate for world wheat supply in a monthly report due Oct. 12, also aided the rally, said Park Yang Jin, a manager of Daehan Flour Mills Co in Seoul.

``People are concerned about the condition of wheat crops in the southern hemisphere, especially Australia,'' Park said.

The stress on Australian wheat will increase over the next week with no significant rain and temperatures as much as 8 degrees Fahrenheit above normal, Joel Burgio, a meteorologist for Meteorlogix LLC in Lexington, Massachusetts, said yesterday.

``We are estimating the Australian crop at 9.5 million metric tons'' after some growing areas got less than 20 percent of normal rain in September, Dan Basse, president of AgResource Co. in Chicago, said yesterday.

Indian Imports

Australia may produce 12 million to 15 million metric tons this year, down from 25.1 million last year, according to a Sept. 27 forecast by AWB Ltd., the nation's monopoly wheat exporter. Australian wheat is sown in May and June and harvested in November and December.

Drought reduced U.S. production 14 percent and led India, the second-biggest producer and consumer of the grain, to import wheat for the first time in six years.

Still, the surge in prices may deter Indian traders from buying more of the grain. India's government has contracted to import 5.5 million tons this year and purchases by non-state traders may reach 1 million tons.

``Indian buyers will remain on the sidelines at least until December,'' said Atul Chaturvedi, president of Adani Enterprises Ltd. ``They are adequately covered for the next two months after buying a total of 6.5 million tons.''

Wheat for immediate delivery at India's National Commodity & Derivatives Exchange gained 0.2 percent to 1,003.8 rupees for every 100 kilograms at 1:40 p.m. Mumbai time. Prices have gained 25 percent in the past year.

Stockpiles Dwindle

Global production in the year ending June 2007 will be 588 million tons, the International Grains Council forecast Sept. 28. That's 0.8 percent less than the group forecast in August and down 4.9 percent from a year earlier.

World wheat stocks are forecast to fall to 126.4 million metric tons on May 31, 2007, from 146.1 million at the end of May this year and the lowest since 1982, the U.S. Department of Agriculture said Sept. 12. Global demand will outpace production for the sixth year in the past seven, the department said.

A surge in wheat prices may reduce the grain's availability for animal feed and bolster gains in prices for corn, also used to feed poultry and hogs, Akio Shibata, director of Marubeni Research Institute, said today from Tokyo.

Corn futures for delivery in December rose as much as 3.5 cents, or 1.2 percent, to $2.93 a bushel, the highest for most- active contract since June 2004. The contract traded at $2.895 a bushel at 4:59 p.m. Singapore time.