Wheat Rises on Speculation Demand to Climb After October Plunge

By Tony C. Dreibus

Nov. 3 (Bloomberg) -- Wheat rose for the first time in three sessions on speculation that demand for U.S. supplies will increase after a 21 percent price decline in October.

Futures in Chicago had their biggest monthly drop in 22 years last month as a deepening global financial crisis curbed commodity demand. Lower prices may encourage overseas buyers to purchase U.S. inventories, analysts said.

``If you're a buyer, you can afford to sit on the sidelines to see how low things will go,'' said Jacquie Voeks, a risk manager at Stewart-Peterson Advisory Group in West Bend, Wisconsin. ``We may start to see some demand on the Asian side.''

Wheat futures for December delivery rose 25.75 cents, or 4.8 percent, to $5.62 a bushel on the Chicago Board of Trade. The most-active contract still is down 58 percent from a record $13.495 on Feb. 27. Farmers around the world increased seeding to take advantage of prices that soared 77 percent in 2007.

Global wheat consumption is expected to rise to 655.6 million metric tons in the year that ends on May 31, up 6.1 percent from the previous year, the U.S. Department of Agriculture said on Oct. 10. Still, production may jump to 11 percent to a record 680.2 million tons, according to the USDA.

As of Oct. 23, overseas buyers committed to purchase 18.9 million tons of U.S. supplies since June 1, down 29 percent, government data show. Lower prices should spur orders, analysts said.

``There's somewhat of a realization that the world is not going to stop eating, and wheat is a staple,'' Voeks said. ``We'll see some more demand out of Iraq again and out of Egypt.''

Australia, Argentina

Wheat also climbed on speculation dry weather in the Southern Hemisphere will hurt production. Australian farmers may collect 19.5 million tons this season, Commonwealth Bank of Australia said today. The USDA forecast 21.5 million on Oct. 10.

``The chance for significant rain in the drought areas of South Australia and Victoria is still low,'' Minneapolis-based DTN Meteorlogix LLC said in a report. ``Rains in northern New South Wales during the weekend were unfavorable for mature wheat and wheat harvests.''

Argentine production may drop to 9.5 million tons, the lowest since 1995, after dry weather and lower fertilizer use hurt crops, the Agriculture Secretariat said on Oct. 15. Growers collected 16 million tons a year earlier.

``People started looking at the supply side of wheat instead of just demand, seeing what the lack of rain has done to Argentina and Australia's crops,'' said Mike Zuzolo, the chief analyst at Risk Management Commodities in Lafayette, Indiana.

Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.