EU wheat firm as Chicago, weather concerns help

MILAN: Wheat prices on major European markets rose, reversing earlier losses on Friday, tracking US futures and extending the gains of the previous session that were fuelled by a bigger-than-expected cut in the US corn crop outlook.

Euronext benchmark November milling wheat was up 1.00 euro or 0.51 percent to 198.50 euros a tonne by 1613 GMT, in thin holiday season trade with only 8,951 lots traded.

"Operators are just following what Chicago is doing," a Euronext trader said.

U.S wheat futures climbed for the fifth straight day on Friday on the back of a weaker US dollar and higher equities, while corn edged lower as traders took profits.

November milling wheat futures in Paris were on track for a nearly 2 percent weekly gain after hitting a six-week high on Thursday, following a 4 percent cut by the US Department of Agriculture (USDA) of its estimate of maize yields.

"We won't break the major resistance at 200 euros (a tonne)," another Euronext trader said.

With harvesting in France drawing to an end, traders cited very good yields in the far north of the country where wheat was less mature during the last spell of rain. One trader said it could lead to an upward revision of the French harvest.

Operators said they were getting more and more worried about bad weather hitting German and Polish crops.

"What will come in will be strongly damaged. Thirty to 40 percent of the German crop will be of feed quality if it continues like this," said a third trader.

Prices were also supported by Algeria buying 500,000 tonnes of wheat, probably from France.

"Algeria continues to favour France for quality reasons," said one exporter.

GERMANY

In the EU's second-largest wheat producer, Germany, prices stabilised as US futures opened up and as the Paris market recovered from earlier losses, with underlying support also coming from growing concern about rain damage to Germany's harvest as wet weather continues.

Standard new crop bread-quality wheat for September and later delivery in Hamburg was offered for sale little changed from Thursday with sellers seeking 11 euros over Paris in late trade and buyers offering 9 euros over Paris.

Traders stressed that German prices were holding well above Paris levels because of concern rain will damage Germany's crop this year.

Repeated rain has now disrupted Germany's wheat harvest for three weeks and work was again stopped on Friday.

"Prices are following Paris but there is great nervousness in the market because of the continued rain during the harvest," one German trader said. "But it must also be said that flour mills are taking a relaxed view of the current picture, a lot seem to be just waiting to see how the quality turns out when national crop test results come in September."

Heavy rain in Germany has worsened the quality prospects for this year's German wheat crop and the situation could deteriorate if rain continues, French grain analyst Strategie Grains said on Thursday.

Strategie Grains forecasts 82 percent of German wheat production this summer will be bread quality, down from its previous estimate of 93 percent.

But the situation was currently much less severe than a year ago, when torrential summer rain produced a German wheat crop of which only 43 percent was milling grade, it said.

German farming association DBV said on Friday the heavy rain this week may hit crop damage and volume. Farmers were likely to continue harvesting late into the evening and at weekends to take advantage of any breaks in the weather.

Widespread showers and low temperatures are forecast for much of Germany from Saturday to Tuesday.

BRITAIN

Feed wheat futures in London were little changed and underpinned by Thursday's bullish USDA report.

London's November feed wheat was up 0.2 pound or 0.12 percent at 163.45 pounds a tonne by 1611 GMT.

"It's impossible to get consumers to commit to anything that they don't have to use within the next 2 to 3 weeks," said a UK-based broker.

Nobody is going to buy wheat in the UK at the moment because it's expensive, it's old crop."

"Spain would normally have 70-80 percent of its cover through to Christmas bought by now and they're still buying August," added the broker.

Spain has been the largest customer for British wheat in recent years, although it slipped back behind the Netherlands in the 2010/11 season.

ITALY

Wheat prices in Italy, a major grain importer in Europe, were flat on the week, but new crops and increasing imports from Russia and Ukraine are likely to push prices down when trade picks up later this month and in September, traders said.

In rare deals, bread quality wheat for prompt delivery was offered at 230-235 euros a tonne, including delivery charges, in line with prices set at a key weekly session at Bologna's cereals bourse on Aug. 4, traders said.

Main Italian grain exchanges are closed this and next week for holidays.

Imports of wheat into Italy fell in the first five months of 2011 compared with the same period of last year while imports of maize jumped 30.6 percent, industry body Anacer said on Friday.

Copyright Reuters, 2011