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Wheat prices slump as rains erode US drought fears

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Wheat prices tumbled to an eight-month low as persistent precipitation raised hopes for the breaking of the drought which has tested US winter wheat seedlings, while investors doubted a key order had gone America's way.

In Chicago, wheat for March slumped 3.1% at one point to $6.91 a bushel, the weakest for a spot contract since June last year.

The better-traded May lot touched $6.97 ½ a bushel, the contract's weakest since June and a fall of 3.2%.

The decline's reflected in part disappointment that it appeared that US wheat had received a small proportion, if any, of a 575,000-tonne import order by Saudi Arabia.

While Saudi's grain buyer, the Grain Silos and Flour Mills Organisation, did not announce origin details, many investors considered the pricing and merchants of the winning lots did not reflect US supplies.

"It didn't look like there was any US stuff in there," Jerry Gidel, chief feed grain analyst at Chicago broker Rice Dairy, said.

'Suddenly reversed course'

Furthermore, the extension of rains in drought-hit parts of the US Plains, and Corn Belt, raised hopes that US winter wheat, which entered dormancy in its worst condition on records going back to the 1980s, could recover before harvest.

"The trend of these storms just seems to be getting bigger," Mr Gidel said.

At Martell Crop Projections, Gail Martell said: "The weather pattern has suddenly reversed course late in winter generating frequent storms and heavy precipitation in the central US", and noting forecasts for more.

"A second wave of heavy precipitation is expected in the US breadbasket. The GFS model forecasts a deep wave of low pressure Friday in southern California, strengthening Saturday over the south west US Desert, eventually lifting north eastward into the Great Plains

"The preliminary forecast indicates 0.50-0.80 inches of moisture in southern Oklahoma, but much heavier amounts in northern Oklahoma, and up to 1.50 inches in central Kansas. Eastern Colorado, north Kansas and Nebraska would receive up to 2 inches of moisture.

"Hard red winter wheat drought is rapidly resolving. The next storm, if it develops as expected, may even generate a moisture surplus."

Widespread drought

Even as of last week, drought was still widespread in parts of the US Plains which form the core of the hard red winter wheat growing area, and still had 75% of Texas in its grip, and 100% of many states further north, such as Kansas and Nebraska.

In the western Corn Belt, all but a fraction of Iowa, the crop corn and soybean producing state, was rated as being in drought.

However, official data last week indicated that wheat seedlings had responded to initial rains which hit last month, with crop condition seen improving, if remaining at historically weak levels.

Wheat vs corn

Wheat for March stood 2.0% lower at $6.99 a bushel with some 20 minutes of trading to go in Chicago, with the May lot down 2.2% at $7.05 a bushel.

At that level, the March contract stood at a discount of nearly $0.22 a bushel to March corn, with the May wheat contract less than $0.03 a bushel from losing its premium.

Wheat, which has a slightly higher feed value to corn per given weight, usually has a premium over its fellow grain, but particularly low levels of corn have tested that relationship.


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