January 16, 2008
US Wheat Review on Tuesday: Rallies on momentum, reluctant sellers
U.S. wheat futures soared Tuesday on bullish momentum from recent rallies, with deferred Kansas City Board of Trade and Minneapolis Grain Exchange contracts ending limit up, floor traders said.
New crop contracts at the KCBT and MGE led the upside amid ongoing concerns about lower-than-expected winter wheat seedings, with sellers unwilling to get in front of the surging markets, traders said.
Chicago Board of Trade March wheat climbed 15 cents to US$9.32 per bushel. Kansas City Board of Trade March wheat rallied 23 cents to US$9.56, and Minneapolis Grain Exchange March wheat rose 29 1/2 cents to US$11.07 3/4.
Commodity funds bought an estimated 2,000 contracts at the CBOT. In pit trades, JP Morgan bought 400 March and 200 September. Newedge USA LLC bought 200 March, and Prudential sold 300 December.
CBOT July wheat, which represents the new crop, briefly traded limit up during the day session on momentum and spillover from the other markets. The markets have rallied on supply concerns since the U.S. Department of Agriculture on Friday issued lower-than-expected estimates for 2008-09 winter wheat seedings.
The markets are battling to secure acreage for spring wheat, but are facing stiff competition from corn and soybeans, analysts said. The USDA put all winter wheat seedings at 46.610 million acres, well below the average analyst estimate of 48.657 million. In 2007, seedings were 44.987 million.
"All the market's doing is adjusting itself pricewise to what's been happening from an acreage standpoint, from a supply standpoint," said John Kleist, analyst for Kleist Ag Consulting.
Market participants were reluctant to step in front of the markets, which have hit limit up for the past three day sessions, traders said. Fresh demand news also was seen as adding support.
Turkey is tendering for 200,000 metric tonnes of wheat for shipment in February or March, according to a media report. Jordan is tendering to buy 100,000 tonnes of hard wheat, of any origin, on a cost and freight basis. Of the total, 50,000 tonnes are for shipment before Feb. 20 and 50,000 tonnes are for shipment Feb. 21 to March 5, an official said.
It seems as though the USDA's seedings estimates may have spurred importers to issue tenders amid ideas the U.S. won't have as much wheat as they previously thought, Kleist said.
"With that last report, that put a new wrinkle into things," he said.
Kansas City Board of Trade
KCBT July, September and December wheat closed limit up. KCBT July wheat, which represents the new crop, has closed limit up since the USDA's seeding estimates were release, gaining 90 cents in three trading sessions.
The USDA pegged seedings of hard red winter wheat, traded at the KCBT, at 32.5 million, down from 32.94 million in 2007. Traders expected to see an increase in plantings, with the average analyst estimate at 34.883 million, according to a pre-report survey by Dow Jones Newswires.
The market wanted to push KCBT July wheat above US$9, a KCBT floor trader said. The contract ended at US$9.08 1/2. None of the contracts that ended limit up were trading synthetically higher at the close, the trader said.
"There were small trades limit up," he said. "I don't think there was enough there to say anything was synthetically higher in the options pit. The big thing today was that you didn't have everybody locked limit."
Big sell orders were not seen at the close, which indicates index fund rebalancing may have come to an end, a KCBT trader said. The annual rebalancing began last week.
Minneapolis Grain Exchange
MGE closed limit up in several deferred contracts ranging from September to July 2009. The contracts did not end trading synthetically higher, a MGE floor trader said.
It seems as though bullish momentum was the primary factor pushing prices higher, the trader said. Trading was busier because the market was not locked at limit up all day, he said.
"Sellers are scared," the trader said. "No one wants to get in front of" the market.
