Wednesday, August 22, 2007

Agriculture Futures Jump on Wheat Demand

Wheat prices climbed for a second day Wednesday, reflecting strong worldwide demand and strained supplies. Other agriculture futures tailed the grain higher.

Elsewhere, energy prices were mixed at midday after the government reported inventories of crude oil grew last week, although gasoline stockpiles fell sharply. Industrial metals jumped on news of robust Chinese imports, while precious metals found support in a declining U.S. dollar.

The price of wheat continues to hover at a 10-year peak on the Chicago Board of Trade, with foreign buyers unfazed by the high cost.

The U.S. has sold roughly 86 percent of what the government expects will be sold in exports all year _ far ahead of the last year's pace, when the country had sold just 27 percent at this time, said John Roach of Roach Ag. Marketing. On Tuesday, Egypt said it bought 240,000 tons of soft, red winter wheat, augmenting the country's recent buying spree.

"It's not like an 'Aha!' moment," said Roach. "We're digesting old news."

Globally, wheat stocks are extremely tight after harvests in several producing nations were damaged by poor weather.

The market also gained momentum as futures for corn, soybeans and wheat all topped what traders call important technical resistance levels early Wednesday, meaning certain contracts crossed a price threshold that can trigger additional buying.

"The professionals, including the commercials and big funds _ anybody who makes a living doing this _ uses a technical system," said DTN analyst Gary Wilhelmi. "The test for today is to see if we can hold above those points."

Currently, those key levels are $7.10 a bushel for wheat, $3.60 a bushel for corn and $8.40 a bushel for soybeans, Wilhelmi said.

December wheat surged 21 cents to $7.25 a bushel. December corn gained 6 cents a bushel to $3.61, while November soybeans added 14 cents to $8.45 a bushel.

Meanwhile, gold prices rose as the U.S. dollar receded against the euro other major world currencies, renewing investor interest in precious metals as a haven from inflation.

December gold jumped rose $4 to $670.20 an ounce in midmorning trading on the New York Mercantile Exchange, while December silver gained 25 cents to $11.92 an ounce.

"Market focus has shifted to Fed-watching and spectating the unfolding credit and home foreclosures saga," said Jon Nadler of Kitco Bullion Dealers in a client note.

Any move the Federal Reserve makes on its benchmark interest rate _ Wall Street is angling for a cut _ will have repercussions for the U.S. dollar. Higher interest rates support a currency, while lower interest rates typically pressure a currency lower. The central bank is scheduled to meet Sept. 18 to discuss the direction of its key federal funds rate, which has been steady at 5.25 percent for more than a year.

Gold often trades opposite the dollar as investors seek a safer haven for their funds.

The euro bought $1.3491 in midmorning trading, while the British pound fetched $1.9888.

In London, industrial metals advanced broadly after Chinese trade data for July released overnight supported a view of strong demand for all the base metals but zinc. China exported more of the steel-coating metal than it imported in July. Nickel, lead and tin led the gains on the London Metal Exchange.

Copper rose nearly 2 percent in London and New York. Nymex copper for December added 6.1 cents to $3.226 a pound.

Meanwhile, oil prices weakened Wednesday after the government reported an unexpected build in crude stocks, but gasoline prices got a boost from a sharp draw on inventories.

The Energy Information Administration said crude stocks grew by 1.9 million barrels in the week ended Aug. 17, bucking analyst expectations for a decline. Analysts polled by Dow Jones Newswires had forecast a draw of 2.8 million barrels, in the vein of the huge 5.2 million-barrel draw of the prior week.

Gasoline prices rose, however, supported by a larger-than-expected drop of 5.7 million barrels in storage. Analysts had projected a slim decline of 600,000 barrels.

October light, sweet crude shed 43 cents to $69.14 a barrel on the New York Mercantile Exchange, giving up earlier gains. Gasoline for September delivery rose 1.18 cents to $1.8755 a gallon.

Hurricane Dean regained some power on Wednesday as it headed toward landfall along Mexico's Gulf coast as a Category 2 storm. Petroleos Mexicanos, the state-run oil giant, evacuated more than 18,000 workers ahead of the storm and shut down installations that produce about 2.7 million barrels of oil and 2.6 billion cubic feet of natural gas a day.

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