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US, Euro Wheat Up as Drought Ravages Aussie Crop

Date: 19-Sep-07
Country: US/FRANCE

Futures had jumped to all-time highs this month, both in
the United States and Europe, amid the smallest surplus of
wheat stocks worldwide in about 30 years. Importing nations
have bought relentlessly despite the high prices.

Wheat futures at the Chicago Board of Trade got off to a
flying start during overnight hours as major exporter Australia
cut its crop estimate to 15.5 million tonnes from 22.5 million
in June.

The sharp reduction surprised some traders, who had
expected the Australian Bureau of Agricultural and Resource
Economics (ABARE) to turn in a conservative downward revision.

But others had expected the Australian wheat crop to be
around 15-16 million tonnes, and they saw little reason to push
prices up further.

"It started with wheat. We always try to figure out how
much bullish news is dialed in. We had a low production number
out of ABARE and still had a dry weather forecast... we
couldn't react to them," said Don Roose, analyst with US
Commodities.

CBOT December wheat was down 1-1/2 cents at US$8.73-1/2per
bushel after hitting an overnight high of US$8.98.

In Europe, benchmark November on Euronext milling wheat
futures was up 1 euro at 264.50 euros a tonne after rising to a
high of 269 euros.

Concerns over the Australian wheat crop had pushed Chicago
and European wheat futures to all-time highs. The record high
in Chicago was US$9.11-1/4 hit on Sept. 12 and the 300 euros mark
in Europe touched on Sept. 5.

Australia is normally the world's No. 2 wheat exporter
after the United States.

"Markets can test $9 again amid tight supply and strong
demand," said a Seoul-based trader.

But many European traders said the market had already
priced in an Australian crop of 15 million tonnes and only a
revision below that could push prices back to historic highs.

"The forecast is lower than expected but still above the
one we were working on," one European trader said.

STRONG ASIAN DEMAND

On the demand side, the Trading Corporation of Pakistan
(TCP) will issue a tender this week to import up to 500,000
tonnes of milling wheat, a senior official said on Tuesday.

The government said last week it had decided to import 1
million tonnes of wheat to maintain a buffer stock.

In Indonesia, a US industry consultant said imports of
US wheat could increase 10 percent in 2007/2008 from the
previous season because of tight supplies from Australia.

Japan's Ministry of Agriculture said it was looking to buy
115,000 tonnes of milling wheat from the United States and
Canada at a regular tender closing on Thursday.

Taiwan's Flour Mills Association will hold a tender on
Thursday to buy 88,000 tonnes of US wheat in two shipments
between Oct. 22 and Nov. 18.

Two groups of South Korean flour millers will tender on
Tuesday to buy 47,700 tonnes of US wheat for shipment between
October and December.

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