European wheat prices could climb further if weather concerns in Europe and the Black Sea region deepen, but some key fundamentals are likely to prevent prices from surging to records seen in 2007/2008. European Union wheat prices sky-rocketed on Thursday on fears about harvest damage in parts of the European Union and Russia, hit by one of the most severe droughts in its history.
Euronext Paris benchmark milling wheat futures briefly touched a 22-month high on Thursday of 178.00 euros per tonne, a rise of over 20 percent since the start of July. "For us a day like yesterday was somewhat over-the-top," said Cedric Weber, analyst at Offre & Demande Agricole (ODA), adding that the price jump was however partly justified by weather concerns in Russia and Kazakstan.
"The daily intensity was very strong and financial operators had a big part to play in this," he said. Volumes traded on Euronext milling wheat futures reached a new record with 43,986 lots exchanged on Thursday amounting to 2.2 million tonnes, or 6 percent of the French wheat harvest.
French grains analyst Agritel said the big price moves were unsettling some market participants who were either fearing or hoping for a price correction in the short-term, it said in a research note. "However, the (price) rise is justified by far tighter fundamentals than what was initially anticipated by the market," the analyst added. The European benchmark wheat contract eased a touch on Friday from highs seen the previous day as market participants took a breather from an extraordinary run in July additionally fuelled by hot dry weather in parts of France and Germany.
French analyst Strategie Grains on Thursday cut by 3.6 million tonnes its monthly estimate for the European Union's 2010 soft wheat crop to reflect the impact of a recent heat wave in some Western EU countries and excessive rain in the East. The Russian Grain Union, an industry lobby, says the drought gripping Russia is the country's worst in 130 years and has already shrivelled grain on 9 million hectares - an area the size of Portugal and about one fifth of the total area sown for this year's harvest.
A key agricultural analyst SovEcon on Friday put its estimate for Russia's wheat crop 49-51 million tonnes, down from 61.7 million tonnes last year. Ukraine and Kazakhstan, other big producers in the Black Sea region, were also expected to see output fall significantly.
However, high wheat supplies in the United States will keep a lid on EU prices, analysts said, including France's Strategie Grains. "When we look at world stocks, I believe that prices in a range of 180-185 euros are reachable in the next few days but they are unlikely to last at that level," Weber said.
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