Wheat gains on Russia imports expectations

SYDNEY/MILAN (Reuters) - U.S. and European wheat futures jumped on Thursday spurred by expectations of a sharp rise in grain imports from drought-hit Russia and export curbs in Ukraine tightening supplies from the Black Sea region.

European milling wheat futures rose sharply in opening trade on Thursday, with the benchmark November contract on Euronext up 7.00 euros or 3.41 percent at 212.25 euros by 0926 GMT, helped also by a rebound in U.S. prices.

Analysts estimate that Russia, usually a major grain exporter, may have to import between 1.5 million and 2.2 million tonnes this year after the worst drought in more than a century damaged its harvest. A report in Vedomosti daily said Russia could import at least 5 million tonnes of grain this year.

“We’ve seen a rapid expansion in recent years in Russia’s livestock industry and the concern there was that potentially you could see Russia turning to the import market and that does seem to be the case now,” Sudakshina Unnikrishnan, analyst at Barclays Capital said.

Imports were most likely to come from neighboring countries including Ukraine and Kazakhstan, Unnikrishnan said.

Kazakhstan said on Thursday Russia will be among its main export markets with 2 million tonnes of grain exports earmarked for Russia, Iran and other countries out of total 8 million tonne grain exports expected in the current marketing year.

“We are likely to see a shift in terms of trade flows so a lot of the exports that were coming out of the former Soviet Union countries for wheat are now going to have to be met by countries like Australia, Argentina and the US,” Unnikrishnan said.

“Similarly with feed grains we have seen a pick-up in demand levels in terms of substitution with wheat and I think that is likely to make for a more compelling demand side that we have seen for a while,” she added.

Grain traders and analysts said the 5 million tonne import estimate seemed reasonable and cited doubts about Russia’s official estimate of 21 million tonne grain stocks carried over from the last season.

“It (the 5 million tonne import estimate) seems very plausible to us and technically feasible... There are doubts about the accuracy of Russian stocks. The Russians are not even sure about their 21 million tonnes of stock,” a French grains analyst said.

U.S. wheat prices rose for a second day with Chicago wheat up 2.52 percent at $6.72-1/2 per bushel, after falling to a 2- week low on Tuesday.

Volumes on the Chicago Board of Trade averaged 205,000 lots per day in the first 17 days of August, versus around 98,000 lots this year and 61,000 lots per day since 2003.

“It has been a handy move up today with some news out of Russia on crop progress with yields to date at 2.1 tonnes per hectare compared with last year’s result of around 2.7 tonnes,” said Luke Mathews, an agricultural commodities strategist at Commonwealth Bank of Australia.

Russia is tipped to harvest around 60 million tonnes of the grain this year, down from 97 million tonnes in 2009.

Prospects for planting the 2011/12 crop, expected to start in September, had improved with rains in some areas, Mathews said.

The drought in the Black Sea region has prompted key wheat importers such as Egypt to look for alternative supplies, including the United States, the world’s largest exporter of the commodity.

Weekly USDA data, due later on Thursday, are expected to show U.S. wheat export sales last week may have exceeded 1 million tonnes for a second consecutive week as the Black Sea drought region fueled demand.

“The market certainly has got an idea in its head that we are going to see a solid improvement in U.S. wheat exports,” said Mathews.

CBOT wheat for December delivery was up 2.4 percent at $7.04-1/4 per bushel on concerns of tight supplies.

U.S. corn exports were also expected to be robust in the latest week due to the drought, while soybean sales should stay high on persistent demand from China.

Corn for December delivery, the most active month, was steady at $4.34- per bushel, with technical charts showing consolidation around this level.

November soybeans, the most active harvest month contract, rose 0.46 percent to $10.35-1/2 a bushel.

Corn and soybean prices are being held back by prospects of a record crop in the U.S. for 2010/11.

Favorable weather for filling corn and soy is expected to continue in the U.S. Midwest for the next week to 10 days although hot and dry weather remains a problem in the South.

Reporting by Bruce Hextall, Svetlana Kovalyova, Gus Trompiz and Sarah McFarlane; Editing by Alison Birrane