U.S. wheat futures are expected to start stronger Monday as a tentative agreement to raise the U.S. debt ceiling fuels a recovery from steep losses Friday.
Traders predict soft red winter wheat for September delivery, the most actively traded contract, will open up 11 cents to 13 cents a bushel at the Chicago Board of Trade. In overnight electronic trading, the contract climbed 12 cents, or 1.8%, to $6.84 1/2 a bushel.
News of the agreement is lifting grain prices after concerns about the lack of progress on negotiations drove wheat futures 3% lower Friday. Some traders are buying back previously sold positions now that it appears the deal will be approved.
"Many markets are experiencing sigh-of-relief rallies associated with debt ceiling developments," said Duane Lowry, analyst for Early Market News, an agricultural advisory firm.
Yet, the gains won't improve the outlook for export demand. The U.S. has already been struggling to compete with low-cost wheat from countries in the Black Sea region on the global market.
Competition for export business increased last month as Russia lifted a nearly year-long ban on grain sales, undercutting prices for U.S. wheat. In response, Egypt, often the world's top wheat buyer, has booked wheat from Russia recently, snubbing the U.S.
Ukraine is expected to increase exports as well, as farmers in the region boost production after a devastating drought last year. APK-Inform, a market analysis agency, estimated Ukraine's 2011-12 wheat output at 20 million tons, up 11% from the U.S. Department of Agriculture's latest forecast and 19% from last year. Still, there are concerns that poor weather may have reduced the quality of the wheat, leaving a large chunk suitable for feeding livestock but not humans.