GRAINS-US wheat firms after Russian ban extension

Trade the News

Friday September 03, 2010 05:27:11 AM GMT

* Russia export ban extension points to rising U.S. exports

* Russia's output shortfall largely factored into markets

* New fundamentals needed to drive prices

(Adds detail, comment)

By Bruce Hextall and Muriel Boselli

PARIS/SYDNEY, Sept 3 (Reuters) - U.S. wheat futures continued rising on Friday on expectations of increased U.S. shipments after Russia extended its ban on grain exports.

Russia abruptly signalled on Thursday it would extend the ban -- which had been due for review after Dec. 31 -- until late 2011 after the worst drought in years cut this year's grain harvest by around a third, stoking fears of food price inflation.

The United Nations Food and Agriculture Organisation (FAO) said on Friday that Russia's move would go against the stability of grains markets but did not bring closer a repeat of the 2007/2008 food crisis.

"Clearly the United States will benefit from grain export bans in Europe and that's likely to be supportive of the market," said Adam Davis, a senior commodity analyst at Merricks Capital, a Melbourne-based funds manager.

Chicago Board of Trade wheat for December delivery rose 1.44 percent to $7.24 per bushel by 1032 GMT, a 3.5 percent gain over the week but below its two-year high of $8.68 per bushel on Aug. 6 when Russia announced its export ban.

"Given the latest reports on grain imports and delays in winter wheat planting, it had to be assumed in any case that Russia would not be exporting significant quantities of grain before the next harvest," Commerzbank said in its daily note.

"This piece of bad news is likely to give further tailwind to wheat prices in the USA and Europe, though, especially for the forward contracts due in the spring, as reflected in the steeper forward curves," Commerzbank added.

The European Union granted on Thursday export licences for 658,000 tonnes of soft wheat this week, taking the total since the start of the season to 3.34 million tonnes. This compared with 2.86 million tonnes of soft wheat cleared for export last season.

"The European Union will quickly come to the bottom of its reserves and the U.S has started to integrate that factor," one European trader said.

Technically, the December contract is expected to make a directional move next week as current consolidation nears an end with a rise above the upper trendline resistance at $7.31 opening the way for a move towards $7.65.

Davis said rising U.S. wheat exports would be supportive of prices.

Data released on Thursday showed U.S. wheat sales for the week ending Aug. 26 were well above expectations at 1.024 million tonnes, and total sales over the past four weeks were 152 percent higher year-on-year.

While output shortfalls due to drought in Russia have driven wheat prices higher by around 40 percent since mid-year, the United Nation's food agency this week forecast 2010 global wheat output to be third largest on record at 646 million tonnes but down 5 percent from 2009.

Davis said weather remained a concern.

Dryness in Argentina, one of the world's leading wheat exporters, is likely to cut the size of the South American nation's 2010/11 harvest to between 9 and 10.5 million tonnes, the Rosario exchange estimated on Wednesday - far less than the 12 million estimated by the U.S. Department of Agriculture.

"Western Australia is also of concern to the global market, particularly for quality wheat," said Davis.

Australia's top grain exporting state received some rain this week which will help sustain yields but forecasts for the 2010/11 harvest that starts in late October put the crop at around 6 million tonnes compared with 8.2 million tonnes harvested last season.

GRAINS PRICES AT 1020 GMT Product Last Change Percent Move End 2009 Ytd Percent CBOT wheat 691.00 10.25 +1.51 541.50 27.61 CBOT corn 433.50 0.50 +0.12 414.50 4.58 CBOT soybeans 1018.50 11.00 +1.09 1039.75 -2.04 CBOT rice 11.28 0.05 +0.49 14.57 -22.58 Crude oil 74.71 -0.31 -0.41 79.36 -5.86 Euro/dlr 1.28 0.00 +0.12 1.43 -10.30 *Front month contracts. CBOT contracts in cents per bushel except rice which is in dollars per hundredweight. Paris wheat in euros a tonne and London wheat in pounds per tonne (Additional reporting by Sybille de La Hamaide; Editing by Anthony Barker)

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