Reply #44: Black Sea Wheat May Not Halt Rally

[Demeter]

http://online.wsj.com/article/SB10001424052702304520804576347230988481532.html?mod=dist_smartbrief


...The Russian government has indicated that it may allow grain exports as early as July in a bid to clear away excess stocks, freeing up much-needed storage space. The upcoming harvest, which begins in September, is forecast to total 85 million to 90 million metric tons of grain, 40% more than last year...Viktor Zubkov, Russia's deputy prime minister, this week said there is "a large degree of probability" the government will allow exports for the first time since August. Analysts predict exports could hit 10 to 15 million tons in the 2011-2012 crop year, which begins in June, up from around four million tons shipped in 2010-2011, before the Kremlin stunned world markets by banning exports. Any decision from Russia will follow a move by neighboring Ukraine to free up exports. Wednesday, ministers in Kiev voted to remove export quotas, potentially allowing about two million tons of wheat into the market over the next few months and making way for eight to nine million tons of exports in the next crop year. Some analysts say the arrival of tens of millions of tons of cheap Black Sea wheat may damp prices in the second half of 2011...Until the drought last year, Russia and Ukraine were key suppliers to wheat-hungry countries in North Africa and the Middle East, which have been forced to buy from Europe and the U.S. instead. Their export curbs helped trigger a surge in prices many blame for sparking the wave of unrest that has swept the Arab world and toppled governments across the region this year.


Yet any decision to free Black Sea exports is unlikely to take the shine off the current weather-driven rally, say analysts. European wheat prices have surged 36% from their lows of two months ago, while U.S. prices soared 24% from a three-month low in March...

The worst drought to hit Europe for decades has cut hopes for crops in France, Germany, the U.K. and Poland, which make up 65% of output in the European Union, the world's largest wheat-producing region. Parts of Europe received less than 40% of average rainfall this spring and forecasters say futures in Paris may revisit February's three-year highs of €281 per ton if crops receive no water in the next fortnight.

Across the Atlantic, dealers are voicing growing concern that rain-related delays to plantings in the northern U.S. and Canada and dry weather in the southern Plains may harm production from the two major exporters...On Thursday, the International Grains Council, an intergovernmental group that tracks the grain trade, lowered its estimate of U.S. wheat production for 2011-2012 by 1.5 million tons to 56 million tons. Some analysts fear losses could be much larger after flooding from the Mississippi River affected 3.6 million hectares of farmland...And with hopes for next year's global harvest diminishing day by day as European and U.S. farmers struggle to combat what Mother Nature has to throw at them, some analysts believe even the return of Black Sea wheat may not be enough to fill the shortfall in international markets.