wheat futures surge in chicago

Wheat Prices Surge Maximum Allowed in Chicago on Supply Concern

Oct. 9 (Bloomberg) By Jeff Wilson and Sandra Smith --

Wheat prices surged the maximum allowed by the Chicago Board of Trade, extending a rally to a 10-year high, on demand for U.S. supplies after drought slashed production in Australia, the third-biggest exporter of the grain.

Wheat futures for December delivery rose 30 cents, or 6.5 percent, to $4.94 a bushel at 11:52 a.m. on the Chicago Board of Trade, the highest since July 1996. Electronic trading halted after prices increased by the maximum.

Prices have jumped 45 percent from a year ago as dry weather hurt crops in the U.S., India and Europe. Farmers will Harvest 16.4 million tons, or 35 percent less wheat than a year ago, the Australian government said Sept. 18.

``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, said Dan Basse, president of AgResource Co. in Chicago. ``That's means importers need to source 7 million to 8 million metric tons of Australian wheat from other suppliers,'' including the U.S., Basse said.

Temperatures as much as 8 degrees Fahrenheit above normal with no significant rain in the next seven days will increase stress on Australian wheat, said Joel Burgio, a meteorologist for Meteorlogix LLC in Lexington, Massachusetts.

Wheat for December delivery on the Kansas City of Board of Trade soared 22.25 cents, or 4.4 percent, to $5.24 a bushel after reaching $5.315, the highest in 10 years.

Face-to-face, or open outcry, trading wasn't affected by the computer problems in Chicago, said Jennifer Rook, an exchange spokeswoman. E-CBOT trading will resume when prices fall below daily 30 cent limit, Rook said in an e-mail

Reduced Growth

Australia's worsening drought may cut economic growth by 0.5 percentage point in the year that ends June 30, according to Sydney-based Westpac Banking Corp. Wheat exports accounted for 2.8 percent of the nation's total commodity earnings last year.

Agricultural production may slump 12 percent, which would send net farm income to a 12-year low and put a brake on the Australian economy's 15-year expansion, the bank said in a report e-mailed to Bloomberg News today.

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

World wheat inventories 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.

World Cereal Harvest

Prospects for the 2006 world cereal harvest have deteriorated because of exceptionally hot, dry weather this year from Australia to Europe, and dry weather in parts of South Asia is also raising some concern about rice production, the United Nations Food and Agriculture Organization said in a report today.

World cereal production will fall 1.6 percent to 2.013 billion tons compared with a year earlier, the report said.

``The main concern is the declining stocks and whether supplies will be adequate to meet demand without world prices surging to even higher levels'' the report said. ``This year's anticipated sharp fall in global stocks may lead to a more precarious situation next season should weather problems prevent an increase in world cereal production,'' the FAO said in a report.