EU wheat strong on US catch-up and crop worry

Europe's benchmark wheat, Paris' November contract was up 5 euros or 2.5 percent at 200.50 euros a tonne by 1544 GMT, crossing the psychologically-important 200 euro level where resistance had been tested for much of the day.

EU markets shrugged-off a sharply weaker opening by Chicago futures on Wednesday caused by profit-taking.

US wheat had jumped 6 percent on Tuesday, fuelled by gains in corn amid concerns hot weather will damage the US corn crop.

The Paris benchmark would have to breach technical resistance at 202 euros to allow a modest upward trend since last month to accelerate, said Matthieu Driol of chart analysts Day by Day.

"This upturn is gradual and sustained but much less dynamic than on the US market," he said. "The European market had fallen much less hard than the US"

But Paris gains were limited by the poor performance by outside markets and concern that French wheat is $40 more expensive than rival Russian supplies in export markets.

"There is no reason for the market to go crazy," one trader said. "French wheat has a $40 a tonne spread with Russian wheat."

The European market could gain fresh momentum if US Traders continue to anticipate downgrades to US corn yields, with a monthly crop report from the US Department of Agriculture on Aug. 11 being eyed as an important gauge.

Signs that wheat harvested in northern France had emerged in good condition after heavy rain last month had removed a potential driver for Paris futures, although dealers were still waiting for firmer indications on rain-hit harvests in Germany and Poland.

In the EU's second-largest wheat producer Germany, the market was supported by the rise in Paris plus more rain which is hindering wheat harvesting and may cause last-minute damage to Germany's crop.

Standard new crop bread-quality wheat for September and later delivery in Hamburg was offered for sale up three euros at 209 euros a tonne with buyers at around 208 euros.

Repeated rain is still disrupting Germany's grain harvest and dry weather is needed to make progress with work, German farming association DBV said on Wednesday. Farmers now need several days of dry, sunny weather to harvest the ripe grains, the DBV said.

But showers fell in west Germany on Wednesday. Most of Germany is forecast to receive rain on Thursday and showers are also expected in many German regions on Friday to Sunday night.

"There is certainly concern about late damage to the wheat crop but not enough has been harvested yet to allow a concrete judgement," one German trader said. "Tuesday was an excellent harvest day and a lot of work was done, but rain is again stopping work today."

"The weather forecasts are not good for the coming days but we will just have to see how much rain actually falls," the trader said.

With harvesting making little progress, some flour mills are starting to face much smaller supplies for immediate use, traders said.

This was likely to spark a surge in buying for quick delivery if the harvest delays continue.

Traders and analysts said on Tuesday they were concerned the delay could damage harvest quality.

Currently less than half of Germany's wheat harvest is finished, with work now running up to a fortnight behind previous expectations in some areas.

Copyright Reuters, 2011