January 10, 2008

 

US Wheat Review on Wednesday: Sinks on fund selling, quiet demand front

 

 

Fund selling drove U.S. wheat futures sharply lower Wednesday amid a lack of fresh demand news, with nearby Kansas City Board of Trade wheat closing at a six-week low, traders said.

 

Chicago Board of Trade March wheat fell 18 cents to US$8.89 1/2 per bushel, the contract's lowest close since Dec. 31. Kansas City Board of Trade March wheat slid 20 1/4 to US$8.89, and Minneapolis Grain Exchange March wheat slipped 13 cents to US$10.30.

 

There was pressure from the annual rebalancing of index funds, which are seen selling wheat, soybeans and soymeal, analysts said. Newedge USA LLC, formerly known as Fimat, for the second day in a row sold 2,000 wheat contracts at the close, a CBOT floor trader said. The business was thought to be for Goldman, he said.

 

CBOT March wheat also triggered selling earlier in the session when it sank below US$9, said Brian Hoops, analyst for Midwest Market Solutions. It was the first time since Dec. 31 that the contract dropped below that level. The next level of support is seen at the Dec. 31 low of US$8.79 1/2.

 

"We've had a trendline that was drawn on daily charts. We broke through that this morning," Hoops said. "That sent off a lot of fund sell-type signals."

 

There was little fresh fundamental news out for bulls to feed on. In routine business, four South Korean flour mills bought 21,300 metric tonnes of U.S. No. 1 wheat, with delivery expected in April.

 

Without more unexpected demand, the markets don't have support for higher prices, Hoops said. Egypt's state-owned General Authority for Supply Commodities on Tuesday canceled a tender to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Feb. 1-15 due to high prices.

 

"We've seen some small token tenders from South Korea and Taiwan, but we don't have the big export numbers that we would like to see," Hoops said. "We've got the small token ones but nothing that's really indicative of prices that need to go higher to ration the stocks."

 

The U.S. Department of Agriculture is expected to release its weekly export sales report at 8:30 a.m. EST Thursday. Analysts expect sales to be 150,000 to 400,000 metric tonnes.

 

Traders are more eager to see the USDA's January crop report, due at 8:30 a.m. EST Friday. The report will include estimates on 2008 winter wheat plantings, 2007-08 U.S. ending stocks and grain stocks as of Dec. 1.

 

Analysts expect the report to show a significant increase in plantings after U.S. wheat futures rallied to new all-time highs in 2007. The average of analysts' estimates for seedings is 48.657 million acres, up from 44.987 million a year earlier, according to a survey of 14 analysts.

 

The average of analysts' estimates for wheat ending stocks is 274 million bushels, down from 280 million in December, according to a survey. The average of analysts' estimates for wheat stocks as of Dec. 1 is 1.116 billion bushels, down from 1.315 billion a year earlier.

 

 

Kansas City Board of Trade

 

KCBT March wheat closed at its session low amid continued fund selling and pressure from CBOT weakness, a floor trader said. It was the contract's lowest close since Nov. 27. On Dec. 3, the contract hit a session low of US$8.88 but closed at US$8.98 1/2.

 

There is ongoing chatter about the index fund rebalancing, expected to last through early next week, the KCBT floor trader said. The funds are expected to remain a feature Thursday, although there may be some positioning ahead of the USDA crop report, he said.

 

Weather models are predicting an aggressive movement of unseasonably cold air into the central U.S. next weekend, T-Storm Weather said in an update to its daily forecast. If it occurs, temperatures would be cold enough to induce winterkill across hard red winter wheat and soft red winter wheat regions, especially in northern areas, the private weather firm said. Winterkill threats need to be more closely monitored because snow cover has melted following recent wetness, according to T-Storm.

 

 

Minneapolis Grain Exchange

 

MGE March wheat closed at its lowest price since Dec. 28. The market led the downside for much of the day session until the late fund selling hit at the CBOT, a MGE floor trader said.

 

There was some selling against CBOT wheat on inter-market spreads amid ideas that it would be "healthy" for MGE wheat to trade at less of a premium, the trader said. Market activity was volatile and will likely remain so until the USDA report comes out, the MGE trader said.