Wheat Prices May Have Bottomed Out; Eyes On June Harvest

Global wheat prices are unlikely to fall further for the next two to three months and may have bottomed out for the time being, a senior industry official said Tuesday.

"We are already close to multi-year lows. I don't see any reason for further decline in prices," Chris Vanhonacker, commercial director of Rias Trading, one of the world's leading exporters of Russian wheat, told Dow Jones Newswires.

He said wheat futures on the Chicago Board of Trade may now hold close to $5/bushel for some time and whether there is a fresh downward pressure from a good summer harvest in Europe and Russia, will only be known in July and August.July CBOT wheat futures contract ended 17 1/2 cents or 3.46% lower Monday at $4.88/bushel. Russian wheat with 11.5% protein is being offered around $175/ton, free-on-board for near-month shipment.Vanhonacker said there isn't much scope for a fall in prices now because many buyers in the physical market put off their purchases, expecting a strong downward correction.

"A lot of buyers didn't buy, they were living from hand to month, their silos are empty," Geneva-based Vanhonacker said.In anticipation of a sharp decline, traders also took short positions in the futures market.

He said buyers in southeast Asia and the Middle East are now expected to step up purchases and traders are also covering their shorts on CBOT, which is supportive for prices.

Global wheat production has been at a record high for two successive years and inventories in countries such as the U.S. are also comfortable.According to FAO estimates, global wheat stocks are expected to reach 183.5 million tons by June 2010, up 28% from two years ago.However, Vanhonacker said high production and inventories have already been factored in the current prices.

There is also a shift in plantings in the U.S. to corn and soybeans from wheat.Vanhonacker said there is a strong buying interest for Russian wheat in Yemen, southeast Asia, Egypt and Iraq for May-June shipment and prices could even rise by $5-$10/ton.He said earlier prices were under downward pressure because of high intervention stocks of around 8.0 million tons in Russia. However, the country didn't offload these stocks into the market.

All focus has now turned to the wheat harvest in the northern hemisphere including Europe, Russia and the U.S., during the June-September season and the crop has entered the very critical final few weeks, he noted.

Rains, moisture and moderate temperature will be crucial for proper development of the crop.A perfect crop can drag down prices below $4.0/bushel on CBOT and Russian wheat may fall to $150/ton but that is highly unlikely, he said.

"Currently the European wheat crop is in good condition but it is a little early to forecast how the weather pans out for the next two months. "He said in some parts of Europe, the temperature is higher than normal and it hasn't rained for a long time.

Even though India and Pakistan are reaping a good crop this year, it is unlikely they will make major forays into the export market, Vamhonacker said.

CME Group