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Wheat Trade More Bullish Even as Bear Market Begins: Commodities

Wheat Trade More Bullish Even as Bear Market Begins
Egypt, the biggest wheat importer, bought 55,000 metric tons of U.S. grain in a tender yesterday. Photographer: Diego Giudice/Bloomberg

Wheat traders are getting more bullish, even after prices tumbled into a bear market, as demand for U.S. exports strengthened and a drought in the Great Plains threatens to curb next season’s crop.

Twelve analysts surveyed by Bloomberg expect prices to rise next week and eight were bearish. A further six were neutral, making the proportion of bulls the highest since Dec. 7. U.S. exports in the four weeks to Jan. 3 were 77 percent higher than a year earlier, government data show. The U.S. Department of Agriculture may cut its forecast for domestic inventories in a report today, according to a Bloomberg survey of analysts.

Dormant U.S. winter-wheat crops are in the worst condition since records began in 1985, according to the USDA, which said Jan. 9 that 597 counties across 14 states were disaster areas because of the drought. That may curb output in the biggest exporting nation at a time when the agency is predicting the smallest global inventories in four years by June after dry weather from Australia to Europe parched fields.

“The wheat exports that were coming from other parts of the world are not there to the same degree they were one or two months ago, so supplies globally will be coming more from the U.S.,” said Erin FitzPatrick, an analyst at Rabobank International in London. “There’s still a lot of time to go ahead of the next harvest in the U.S., but the risks are high.”

Bear Market

Wheat rose 19 percent last year on the Chicago Board of Trade, leading gains in the Standard & Poor’s GSCI gauge of 24 commodities. The grain entered a bear market Jan. 4 after retreating 20 percent from a four-year high in July. Its 5 percent drop since the start of January compares with a -0.1 percent decline in the S&P GSCI and 3 percent advance for the MSCI All-Country World Index of equities. Treasuries lost 0.6 percent, a Bank of America Corp. index shows.

Egypt, the biggest wheat importer, bought 55,000 metric tons of U.S. grain in a tender yesterday, underscoring the shift in its buying since last month. The North African nation bought mostly Russian and eastern European cargoes in the second and third quarters last year and French supply from September, data compiled by Bloomberg show.

U.S. exporters sold 2.29 million tons in the four weeks ended Jan. 3, the USDA said yesterday. That included 1 million tons in the week ended Dec. 20, the most since June 2011. Chicago prices were about $1.39 a bushel cheaper than French milling wheat traded on NYSE Liffe in Paris today.

USDA Forecast

Inventories in the U.S. may decline to 741 million bushels (20.17 million tons) by May 31, or 1.7 percent less than the USDA forecast last month, according to a Bloomberg survey of 30 analysts. The agency updates its estimate at 12 p.m. in Washington. It predicted in December that global reserves would drop to 176.9 million tons, the lowest since the 2008-09 season.

Futures touched a six-month low today, before fluctuating. The grain has tracked losses in recent weeks in corn and soybeans, amid improving prospects for South American harvests. Brazil will reap a record soybean crop and Argentina the most corn ever, according to Bloomberg’s survey. All three crops are used in livestock feed and biofuels, with demand influenced by changes in relative costs.

Hedge funds and other speculators increased bearish bets on wheat by 61 percent in the week ended Dec. 31 and were the most negative on prices since May 15, U.S. Commodity Futures Trading Commission data show.

Disaster Areas

U.S. farmers probably expanded winter-crop planting to a four-year high of 42.59 million acres, spurred on by prices that were the second-highest on record last year and crop-insurance guarantees that will protect them in the event the crop is ruined, according to Bloomberg’s survey. The USDA declaration of disaster areas in almost 600 counties means farmers in those areas are eligible for low-interest loans.

More acreage may not necessarily mean higher output because of the drought, FitzPatrick said. Virtually all of the Great Plains from South Dakota to Texas is covered in drought, according to the U.S. Drought Monitor. Some parts of Kansas, the biggest U.S. winter-wheat grower, had less than half the normal amount of rain in the past three months, National Weather Service data show.

In other commodities, 10 of 26 traders and analysts surveyed expect gold to rise next week, seven were bearish and nine were neutral. That’s the smallest proportion of bulls since October. Bullion rose 7 percent last year on the Comex in New York for a 12th consecutive annual gain, and traded at $1,660.80 an ounce today.

Benchmark Contract

Fifteen of 25 analysts said copper may increase, five were bearish and five were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 4.4 percent last year and was at $8,056 a ton today.

Nine of 19 people expected raw sugar to fall next week, eight predicted a gain and two were neutral. The commodity traded at 18.96 cents a pound on ICE Futures U.S. today after retreating 16 percent last year for a second consecutive annual decline.

Twelve of 26 people anticipate a gain in corn next week and six said the grain will drop, while 12 of 27 said soybeans will increase and nine expected falling prices. Corn rose 8 percent last year and was at $6.9075 a bushel in Chicago today. Soybeans traded at $13.6575 a bushel after rallying 17 percent in 2012.

The European Central Bank kept interest rates on hold yesterday as improving sentiment underpinned expectations of a gradual recovery. China’s exports rose more than forecast last month, customs data yesterday showed. The International Monetary Fund expects 3.6 percent global economic growth this year, from 3.3 percent in 2012.

“There is quite a general bullish atmosphere at the moment, with good data out of China, good data out of the U.S., and the opinion that Europe is bottoming,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “It is reasonable to believe that the stabilization will continue and growth will pick up moderately.”

Gold survey results: Bullish: 10 Bearish: 7 Hold: 9
Copper survey results: Bullish: 15 Bearish: 5 Hold: 5
Corn survey results: Bullish: 12 Bearish: 6 Hold: 8
Soybean survey results: Bullish: 12 Bearish: 9 Hold: 6
Wheat survey results: Bullish: 12 Bearish: 8 Hold: 6
Raw sugar survey results: Bullish: 8 Bearish: 9 Hold: 2
White sugar survey results: Bullish: 8 Bearish: 9 Hold: 2
White sugar premium results: Widen: 2 Narrow: 8 Neutral: 9

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