A prolonged drought in China could hit grains output in key growing regions, further squeezing global supplies and putting upward pressure on prices, but plentiful domestic wheat stocks will act as a cushion and keep import volumes low.
Analysts are closely watching the weather in China, warning any further supply shocks in the grain markets would fuel a further rally in U.S. corn and wheat futures, already stoked by harsh crop weather in the United States and Europe.
"Parts of China have been too dry and if we did see crop failures in that part of the world they are going to look to the global market for supplies," said Luke Mathews, a commodity strategist with Commonwealth Bank of Australia in Sydney.
"They are going to be looking to North America and Europe and there is significant amount of concern whether those particular countries will be able to satisfy those needs."
Chicago Board of Trade corn has climbed 80 percent since the start of May last year, while wheat has risen around 50 percent. Last week alone corn and wheat jumped more than 10 percent on expectations of a global squeeze in supplies.
CNBC
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