Wheat Rises as Investors Bet Crops Will Face Adverse Weather

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3 March 2008Bloomberg

Wheat rebounded, surging the most allowed by the Chicago Board of Trade in early trading, on speculation adverse weather will hurt crops for the third straight year.

Drought ravaged crops in Australia in the past two years, and an April freeze followed by excessive rainfall last year curbed yields in the U.S., the largest wheat exporter. The International Grains Council has forecast global production will increase 7 percent to 646 million metric tons in the year ending June 30, 2009.

``Wheat is bullish until we get more supply on board,'' said Vince Ambrose, a trader at MF Global in Chicago. Investors ``want to see that the crops look good, and we have to make sure the crop is in the bin,'' he said.

Wheat futures for May delivery rose 16.5 cents, or 1.5 percent, to $11.025 a bushel on the CBOT. Earlier, the price jumped 60 cents, the most permitted today by the exchange. The most-active contract plunged 13 percent in the previous two sessions.

On Feb. 27, wheat reached $13.495 a bushel, the highest ever. The price has more than doubled in the past year on speculation farmers won't produce enough to meet global demand.

World inventories will fall to 109.7 million metric tons in the year ending May 31, the lowest since 1978, the U.S. Department of Agriculture said on Feb. 8. U.S. stockpiles may decline to 272 million bushels, or 7.4 million metric tons, the lowest in 60 years, the agency said.

U.S. Sales

From June 1 to Feb. 21, advance sales of U.S. supplies increased 55 percent from a year earlier, the USDA said last week. Actual shipments are up 53 percent, USDA data show. Inspections of wheat for export are up 47 percent, the government said today.

Kellogg Co. and General Mills Inc., the largest U.S. cereal-makers, have raised prices partly to counter higher wheat costs.

Wheat also climbed in tandem with a jump in other commodities. Raw-material prices have climbed on demand for alternative investments amid a slump in the dollar and signs of accelerating inflation.

Crude oil, gasoline, gold, platinum, corn and soybeans rose to records today, while the dollar fell to the lowest ever against a weighted basket of the euro, yen, pound and three other major currencies.

``The whole `buy-commodities' mentality is running the markets today,'' Ambrose said.

Wheat was the fourth-biggest U.S. crop in 2007, valued at $13.7 billion, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Tony C. Dreibus in Chicago at [email protected].