U.S. wheat outlook: Seen up on dryness in Europe, Russia

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U.S. wheat futures are expected to be stronger at the start of trading Wednesday due to increasing concerns about dryness threatening output in Europe and Russia.

Traders and analysts predict soft red winter wheat for July delivery, the most actively traded contract, will start 10 cents to 12 cents a bushel higher at the Chicago Board of Trade. In overnight electronic trading, the contract climbed 11 1/4 cents to $7.75 1/4 a bushel.

Worries about the lack of rain in key growing areas of western Europe and Russia are just the latest problems for global growers, as a months-long drought has stressed wheat in the southern U.S. Plains.

"France is in the middle of a pretty serious drought, with many areas having their driest spring in 50 years," warned Kurt Legred, analyst for Country Hedging, a brokerage in Minnesota.

Grain users are on edge over the threats to production after poor weather, including a historic drought in Russia, slashed global wheat output last year. Wheat futures reached 2 1/2-year highs in February on a surge in demand and have since pulled back 13%.

Dryness will continue to stress wheat in western Europe, as little rain is expected through the first half of next week, said Mike Palmerino, senior agricultural meteorologist for Telvent DTN, a private weather firm. Germany is struggling with the dryness, along with France.

"More rain is needed to support the winter wheat and rapeseed crops, with crop losses increasing due to drought stress," Palmerino said.

In Russia, which where crops were devastated by drought last summer, an overall trend towards drier weather in this region bears watching, according to Telvent DTN. The lack of rain "could begin to have a negative impact on crops in the coming weeks if it continues," the firm said.

Russia banned grain exports because of last year's drought and has not yet re-opened its doors to the world market. The U.S. Department of Agriculture's Moscow attache said Wednesday it was unnecessary for Russia to extend the ban, as farmers are expected to post a 6 million to 7 million metric ton grain surplus in the 2011-12 season. Yet, the attache said political considerations mean the Kremlin may keep the embargo to cap domestic grain prices.



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