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February 19, 2009

Wheat prices fall as rain, irrigation counter drought in China

by Tony C. Dreibus

Wheat fell to a two-month low as rain and irrigation mitigate drought damage in growing areas of China, the world’s biggest producer of the grain.

About 69.8 million mu (11.5 million acres) of winter wheat are suffering from the worst drought in five decades, China’s Office of State Flood Control and Drought Relief Headquarters said yesterday. The affected area has been cut in half from its peak on Feb. 7 by precipitation and irrigation, the agency said.

“China’s weather has improved, and at least half of the drought area is OK,” said William Bayer, a partner at PTI Securities in Chicago. “The weather is cooperating, or they’ve successfully irrigated to fend of at least a quasi-disaster.”

Wheat futures for May delivery fell 5 cents, or 0.9 percent, to $5.23 a bushel on the Chicago Board of Trade. Earlier, the price touched $5.22, the lowest since Dec. 16. The most-active contract is down 61 percent from a record $13.495 set almost a year ago.

The drought in China won’t affect grain prices because the nation has “the largest wheat reserves in the world,” said Brady Sidwell, assistant director for Northeast Asia at Rabobank International.

Rain fell in the two days that started Feb. 14 in growing areas of China, improving the outlook for winter wheat, Minneapolis-based DTN Meteorlogix LLC said today in a report. More rain may fall in the next week, helping crops in the Yangtze River Valley, the private forecaster said.

France said it will increase sales of wheat to nations outside the European Union by 5.6 percent to 9.5 million metric tons. Algeria and Morocco bought 55 percent of French wheat sold outside of the EU in the six months ended Dec. 31, the grains and oilseed crops office said today.

Wheat is the fourth-biggest U.S. crop, valued at $16.6 billion in 2008, behind corn, soybeans and hay, government data show.

Bloomberg

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