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Drought, China rumors send wheat to new highs

CHICAGO: Growing worries about drought damage to this year's U.S. wheat crop and fresh rumours that China may soon be back in the market as a big buyer kept the biggest grain market rally in years on the boil on Friday.

May wheat at the Chicago Board of Trade closed 19 cents a bushel higher at $5.82-1/2, with new life-of-contract highs set in all months through the July 1997 delivery.

That price was up 60 cents for the week, or 12 percent, and compared with $4.83 a month ago.

At the Kansas City Board of Trade, wheat futures for May delivery closed at $6.13 a bushel, up 24 cents. It was the first time wheat had traded over $6 at the exchange since February 1974, when the all-time high of $6.19 a bushel was set.

Chicago traders said they had expected some profit-taking to hit prices ahead of the weekend after this week's record gains on worries about drought and cold weather in the Midwest.

With world grain stocks at the lowest level in decades, American grain is being counted on to rebuild stocks this year.

But forecasts for dry cold weather for the battered U.S. winter wheat crop from Texas to Kansas continued to send shivers up the backs of grain traders and analysts.

"It was impressive, very impressive. The market again showed it bends but doesn't break," said Paul Haugens, vice president of FIMAT Futures in Chicago.

"It's going to be very hard to break corn as long as you have a wheat market that's running away," Haugens said.

CBOT May corn closed 6-1/2 cents a bushel higher at $4.51 a bushel after earlier falling as low as $4.39 as speculators cashed in profits. The all-time high of $4.55-1/4 was set a day earlier on Thursday.

On Friday, traders also were reminded of possible spring flooding problems when Grand Forks, North Dakota, issued a flood emergency when the Red River rose two above flood stage in the first emergency since 1989.

North Dakota is the top producing state for spring wheat, which is due to be planted shortly if no delays set in.

"Until we get rain in the Plains this wheat is not going to break and now we have the weather in the Dakotas," one trader in the CBOT wheat pit said.

Talk also circulated late Friday that China is seeking or may have bought more U.S. wheat. China has already bought 2.3 million metric tons of U.S. wheat for the current marketing year ending May 30 and 1.08 million tons for next year.

The rumour came on the heels of an Agriculture Department report on Thursday predicting that U.S. wheat stocks on June 1 will be the lowest since 1947.

At the Commodity Exchange in New York, May copper closed up 0.60 cent a lb at 119.40 cents, up almost six cents on the week.

Copper warehouse stocks registered for delivery at the London Metal Exchange dropped over 12,000 tonnes this week, largely in Singapore, sparking optimism about renewed Asian -- in particular Chinese -- consumption.

"We might be looking for another LME drawdown on Tuesday but the market is divided about that. Copper got some of the fever from the other commodities today," said Refco analyst James Steel.

At the New York Mercantile Exchange profit-taking pushed oil prices sharply lower after five-year highs were set on Thursday.

May crude closed down $1.05 a barrel at $24.29, May heating oil ended down 2.00 cents a gallon at 62.02 cents and May gasoline ended down 2.13 cents at 72.17 cents a gallon.

"The oil complex fundamentally still looks pretty strong, despite a bout of profit-taking going into the weekend, ahead of what could be a U.N. agreement on limited Iraq oil sales," Smith Barney analyst John Saucer said.-Reuter