Wet Weather Forecasts Support Wheat Prices

 | Jun 10, 2016 09:38AM ET

Wheat prices have been rallying recently as heavy rains flooded France’s grain production areas. Excess rains are forecast for Europe next week too, including France, Europe’s top wheat producer. Will the wheat price continue rallying following the forecasts?

Wheat prices have been advancing as France’s biggest grain production areas south of Paris were flooded last week. While the European Commission raised its outlook for soft wheat production by more than 2 million tonnes in late May to 145.1 million tonnes, wheat prices reached highest in months on concerns of negative impact on France’s crops from heavy rain during flowering and the threat from fusarium fungus which may spread due to resulting soggy conditions. Forecasts of excess additional rains for Europe next week, particularly France, European Union’s top wheat producer nation, provide continued support for wheat. Today US Department of Agriculture's monthly WASDE global crop supply and demand report will be released, which may bring higher volatility if crop estimates differ substantially from forecasts. Analysts are not expecting surprises though, predicting ending stocks of 980 million bushels for old crop and 1.045 billion bushels for new crop, slightly above USDA’s May new-crop ending stocks estimate of 1.029 billion bushels which is the biggest wheat stockpile since 1987. At the same time further price increase may provoke a short squeeze propelling wheat prices even higher given the big net short position in wheat by managed money. And agricultural commodity prices are getting additional boost from weaker dollar.