Wheat futures jumped 4% amid revived concerns over dryness in the southern US Plains, and with buying supercharged by a rash of covering by funds of their historically large short position in derivatives.
Chicago-traded soft red winter wheat, the global benchmark, hit $5.29 Ѕ a bushel in Chicago at one stage, a gain of 4.2% on the day.
Hard red winter wheat, as traded in Kansas City, jumped $5.76 ј a bushel for May delivery, vying for what would be its best close in two months.
The rises came amid fresh disappointment over a dearth of rainfall in the US central and southern Plains, a hard red winter wheat growing area, where dryness represents an increasing threat to seedlings now they are emerging from dormancy and require moisture to grow.
“The persistent dryness is becoming an increasing concern for the winter wheat crop in the central Plains, especially in South Dakota, Nebraska and central Kansas,” said Kyle Tapley at Maryland-based weather service MDA.
“With no significant rainfall forecast in these areas over the next 10 days, little improvement is expected.
“Above-normal temperatures in these areas over the next 10 days will also accelerate growth of the wheat crop, which will increase moisture needs.”
At Martell Crop Projections, Gail Martell said that “drought continues to plague hard red winter wheat in the Great Plains”, while adding that the forecast for the region “continues dry for the upcoming week”.
‘Pretty big shorts’
The rise in wheat prices was seen as being accelerated by a clamour for closing short positions among hedge funds which, as of a week ago, had a net short of more than 65,000 contracts – a historically large position, if some 15,000 lots short of the record high.
“This looks like to a large extent down to short-covering,” said Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy, adding that technical factors had largely played a part too, with contracts climbing above a series of moving averages over the past two sessions.
At Iowa-based US Commodities, Don Roose said that “short-covering looks like it is having a lot to do with it.
“Funds are sitting on some pretty big shorts,” bets on price falls, as opposed to the long bets which profit when futures rise.
Market nervousness had been exacerbated by the prospect on Tuesday of two much-anticipated US Department of Agriculture reports, on US grain stocks and spring crop plantings, he added.
However, he cautioned against getting carried away on the wheat price rally, unless foreign prices rise too.
“The problem is that whenever we have had the wheat market go up recently, the rest of the world does not follow.
“We become uncompetitive again in an export-driven market.
“So among investors there is an ‘uh oh’ and prices go back lower again.”
Paris wheat for May closed up 1.3% at E191.25 a tonne, while London May futures added 1.0% to £122.75 a tonne.
Chicago wheat for May was up 4.0% at $5.28 a bushel with some 45 minutes of trading to go, with Kansas City wheat for May up 3.7% at $5.73 Ѕ a bushel.
(Source – http://www.agrimoney.com/news/wheat-prices-soar-as-funds-fret-over-us-dryness–8143.html)