European wheat falls on debt, economic jitters

PARIS: European wheat futures accelerated losses by midday on Monday as debt worries on both sides of the Atlantic, and concern about a weakening global economy, pushed investors to sell risky assets such as commodities.

Major Asian and European equity markets tumbled despite efforts by global policy makers to stem a collapse in investor confidence, and as gold prices surged to a record above $1,700 an ounce.

The benchmark November milling wheat contract on the Euronext exchange was down 2.56 percent at 190.50 euros a tonne by 1000 GMT.

Losses had earlier seemed limited at around 1.3 percent as investors took comfort in the European Central Bank's move to buy Spanish and Italian bonds to halt contagion from the euro zone debt crisis.

A pledge by G20 members to take action to ensure market stability and economic growth, had also seemed to help investors digest a historic downgrade of the U.S debt rating.

"The market is responding today to the downgrade of the US credit rating and the consequent rise in risk aversion of investors," Commerzbank analysts said in a research note.

Commerzbank analysts noted Monday's market reaction came on the heels of ongoing concerns about stronger Russian competition that pushed US wheat down.

Despite Monday's fall, European wheat prices remained range-bound as investors continued to await the confirmation that a severe drought in June and heavy rains in July have not spoilt wheat crop in key European producers France and Germany.

"We're still seeing the same bearish trend as last week but there isn't a big wave of selling. People are maybe waiting for the USDA report," said a dealer in Paris, referring to the August crop reports the US Department of Agriculture is due to release on Thursday.

Traders said concern about US corn yields and output kept corn firm despite the collapsing equities, but weather forecasts for more benign temperatures and some crop-friendly rainfall in coming days may end this support.

In oilseed markets, November rapeseed shed 7.75 euros or 1.84 percent to 412.75 euros a tonne.

"On our market, volumes are light, except for November rapeseed. People are more worried about rapeseed than cereals with crude oil falling," said the dealer in Paris as worries about a double-dip recession pushed oil lower by as much as $3 a barrel.

Elsewhere in Europe, Spanish prompt wheat prices gave back some recent gains to line up with forwards with an eye to recent falls in Paris, but volume was thin due to the holiday season and buyers awaiting Black Sea shipments.

In Tarragona, the main entry port for grains in import-dependent Spain, prompt feed wheat was quoted at 214 euros/tonne, down 6 euros from a week ago.

August-October feed was meanwhile unchanged at 220 euros/tonne.

Traders said a cargo of maize was being unloaded in Tarragona, but importers were awaiting direction before charting wheat.

"High and extremely volatile cereal prices turn any decision into a time bomb, which will either be defused over time -- or explode," said a report from the Mercolleida agricultural exchange.

"A possible problem for feed makers is that it seems every one here has permits to import from Ukraine, but right now the most aggressively priced wheat is Russian."

Copyright Reuters, 2011