January 9, 2007

 

US Wheat Review on Monday: Speculative, fund selling pressure prices lower

 

 

U.S. wheat futures finished weaker Monday as speculative and fund selling pressured prices amidst low buying interest, analysts said.

 

Chicago Board of Trade March wheat closed 6 1/4 cent lower at US$4.64 a bushel, Kansas City Board of Trade March wheat ended 2 1/4 cents weaker at US$4.79, and Minneapolis Grain Exchange March wheat settled down 4 3/4 cents at US$4.82 1/4.

 

Buyers were reluctant after sharp losses last week worked to "rattle the cages of a lot of people" who were not expecting such a dramatic move into negative territory, said Dan Zwicker, senior analyst with AgriVisor.

 

"I think last week's decline has made everybody hesitant," Zwicker said. "Very few people if anybody was really expecting that steep of a decline."

 

Buying interest also was low ahead of an expected re-balancing of the Dow Jones-AIG Commodity Index Fund that may include a sell-off of wheat contracts, CBOT floor sources said. There has been talk among traders that index funds may reallocate their existing length into CBOT soybeans and out of corn and wheat, sources said.

 

Fundamentally, there is pressure on wheat from slow export business and favorable growing conditions in the U.S. Plains, analysts said.

 

The U.S. Department of Agriculture reported that 10.627 million bushels of wheat were inspected for export through the week ended Jan. 4, below trade expectations. Analysts surveyed by Dow Jones Newswires had estimated inspections would range from 14 million and 19 million bushels.

 

The latest total was down from a week earlier, when 19.667 million bushels were inspected for export.

 

Although the inspections period included the New Year's holiday, which may have depressed business, export business is still considered disappointing, sources noted. For the current marketing year to date, 495.576 million bushels have been inspected, down from 620.318 million a year earlier, according to the USDA.

 

"It's like you can't give wheat away," a CBOT floor source said.

 

Recent precipitation in U.S. hard red winter wheat and soft red winter wheat areas also has been negative for futures prices, analysts added.

 

"You've had a lot of rain in the drier areas of the Southern Plains," Zwicker said.

 

Fund liquidation of 2,500 contracts at CBOT was another bearish factor, a floor trader added. In pit trades, Iowa Grains sold 1,000 March, and Man Financial sold 400 March. Fimat bought 500 March, while JP Morgan bought 400 March.

 

Technically, CBOT March wheat last week suffered near-term chart damage from heavy losses, an analyst added.

 

Looking ahead, Zwicker said that wheat could make a move toward the upside if shorts cover their positions and encourage technical buying.

 

"I think we need to have a strong enough move that we're starting to regain last week's losses in a meaningful way," he said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures were "mostly just following Chicago" during the day session, a floor source said. Traders also were waiting for the expected fund re-allocation, he noted.

 

There was some light fund selling, but overall volume was unimpressive, the source added.

 

In pit trades, Man Financial sold 600 March, Fimat bought 500 March. JP Morgan bought 500 March and sold 500 March, sources said.

 

 

Minneapolis Grain Exchange

 

Trading at MGE grew quiet about an hour into the day session, a floor source said. There was some suspected fund selling and good commercial pricing on March wheat early, he noted.

 

Otherwise, inter-market spread traders, who have influenced trading recently, were seen to be sitting out of the market, the source added.

 

"The inter-market spreaders here have kind of stepped to the sidelines," he said.

 

In other news, a strong storm that pushed into south-central and southeastern Manitoba provided much-needed snow cover for winter grains in the area, according to the Canadian Wheat Board's crop update for the period ended Jan. 2. Still, more snowfall is needed in southern Saskatchewan and Alberta to help protect crops and provide some moisture for the spring, the update added.

 

The storm system that pushed into south-central and southeastern Manitoba dumped 15 to 30 mm (water-equivalent precipitation) of snow in the region, the CWB said. Precipitation was light in most areas of Alberta, Saskatchewan and western Manitoba.