Wheat may peak near $11 on weather

US wheat prices will rise above $8.50 a bushel this spring and may approach $11 if adverse weather damages the crop in the United States and other top growing nations, said an analyst who was the second closest in predicting prices in a Reuters Poll last year.
Worries about snug global supplies of milling wheat after rains damaged Australian crops and after a dry start for the US winter wheat crop will support the market through spring before prices ease in the second half of 2011 as the northern hemisphere's harvest replenishes stocks, said Jack Scoville of the Price Futures Group. Benchmark wheat futures on the Chicago Board of Trade could then hold within a still-firm $8 to $10 range, he said.
"Originally I thought coming into this year that we'd stay firm but kind of chopping sideways, but with the weather the way it is it's hard to say that now. The weather is just flaky enough that it's going to keep production bears on edge," Scoville said."We know that we've had big problems over in Europe and now down in Australia, but we've got some problems here (in the US Plains) with the potential for freeze." he said.
Wheat gained 46.7 percent in 2010, all in the second half of the year, as reduced US seedings were followed by a severe drought in the Black Sea region which forced Russia, the world's No 2 wheat supplier, to ban grain exports through at least July 2011.Crop-damaging rains in Germany, Canada and Australia, and dry early growing season weather in the US winter wheat belt added to supply woes in a world still jittery from grain shortages in recent years that triggered food riots in some countries.
"Your first target is going to be about $8.50 or so and if we continue to have weather issues I think we could see the market march higher towards the $11 area. It will take more than just the weather here (in the United States) to get it going that high, but it could happen," Scoville said. Wheat has not traded above $9 a bushel since 2008, a year in which the spot month CBOT contract hit an all-time high of $13.34-1/2 per bushel. Spot wheat futures have not traded above $11 since March 2008.
UNEXPECTED SECOND-HALF SURGE Wheat's strong rally in 2010 was not foreseen by the analyst community last January as abundant global supplies at that time and a fading US export pace had dragged prices lower for two consecutive years.
Spot CBOT wheat futures settled at $7.94-1/4 per bushel on December 31, 2010, up 46.7 percent in the year and the largest annual increase since 2007. Scoville of the Price Futures Group came in second in the poll to Joe Victor, who has since left brokerage Allendale Inc to join the Minneapolis Grain Exchange. Victor declined to predict 2011 prices for Chicago Board of Trade wheat futures.
Former Allendale Inc analyst Joe Victor, now a business development specialist at the Minneapolis Grain Exchange, topped all forecasts with his $5.90-a-bushel outlook for the year-end wheat price. Scoville's $5.75 forecast was the next highest of the 14 projections, eight of which anticipated wheat prices to close lower than the $5.42 settlement on December 31, 2009. The average trade estimate was $5.27 per bushel.
While last year's steep surge was unexpected, Victor said that he had expected at least a modest rebound in wheat prices on growing global food demand and narrowing supplies of other starches. "I looked at supply and demand, not only wheat but also the other caloric items and energy food items like corn and rice," Victor said. Scoville's moderately bullish view last January stemmed from wheat's prolonged slide since late 2008 and an overall positive outlook for commodities markets in general.