Paris wheat extends rally after USDA world supply downgrade

PARIS: Euronext wheat extended gains on Friday as the market continued to be bolstered by the US Department of Agriculture's (USDA) sharp reduction to its world wheat supply outlook.

Front-month September milling wheat on Paris-based Euronext was up 1.50 euros, or 0.9%, at 178.25 euros ($200.57) a tonne by 1603 GMT, after adding nearly 2% on Thursday.

The rally sparked by Thursday's monthly USDA crop report helped Paris spot prices pull away from a near eight-week low of 172.25 euros touched on Wednesday and end little changed on the week.

In its widely followed report, the USDA lowered its forecast of world wheat production in 2019/20 by over 9 million tonnes, including a 3.8 million tonne decrease to projected output in top exporter Russia.

The agency also reduced its forecast of European Union wheat production by 2.5 million tonnes.

"The USDA report came as a bit of a shock to the market," merchant ADM Agriculture Ltd said in a note.

"It appears that the global 'high' in wheat production for the season may have already been and gone."

However, like other forecasters, the USDA still expects higher production in Russia, the EU and worldwide than last year.

In France, crop ratings for soft wheat declined again last week but remained slightly above last year's level.

Harvesting was underway, with 9% of the crop area cut as of July 8, farm office FranceAgriMer said.

Traders said soft wheat harvesting was expected to get into full swing next week and that the trend so far suggested decent yields and improving protein levels after initial weak results on the west coast.

In exports, the USDA revised up projected US and EU shipments in 2019/20 while reducing expected Russian exports, but traders said short-term export prospects for western European wheat were weak.

In France, current export loadings showed more activity in barley than wheat.

In Germany, export competition from cheaper Russian and Baltic supplies was keeping prices below Euronext levels.

Standard bread wheat with 12% protein for September onwards delivery in Hamburg was offered for sale at 3.0 euros under Paris December against 3.5 euros under on Thursday.

Buyers were seeking at least 4.5 euros under.

"Russia's wheat crop seems to be reaching generally high protein levels which means tough competition to the EU in export markets despite the reduced crop volumes."

Wheat also found support in risks to maize (corn), with crops on both sides of the Atlantic facing dry weather as they approach pollination.