January 18, 2007

 

US Wheat Review on Wednesday: Higher on CBOT corn, short covering

 

 

U.S. wheat futures finished solidly firmer Wednesday with gains propped up by spillover strength from the neighboring corn market and short covering, sources said.

 

Chicago Board of Trade March wheat closed 13 cents higher at US$4.77 per bushel; Kansas City Board of Trade March wheat ended 6 cents up at US$4.98; and Minneapolis Grain Exchange March wheat closed up 10 1/2 cents at US$5.02.

 

The gains came after wheat futures settled sharply lower Tuesday. There was short covering after the losses, and some ideas that wheat was in an oversold condition, CBOT floor sources said.

 

Stronger CBOT corn and soybeans futures prices also supported wheat during the day session, a trader noted. CBOT corn has given wheat direction and shown fresh strength since the U.S. Department of Agriculture last week lowered estimates for production and carryout.

 

Despite the advances, however, wheat is still in a down-trending channel due to bearish fundamentals, said John Kleist, senior analyst with Top Third Ag. He said Wednesday's gains were "one of several corn-related whipsaws that wheat has had on its three-month downward trek."

 

A whipsaw is a violent counter-reaction to earlier market movements, he added.

 

Talk that index fund rebalancing ended Tuesday was probably psychologically supportive for wheat, although "it wouldn't be helping it if corn was lower," Kleist said.

 

Fund buying of an estimated 3,000 contracts at CBOT also boosted wheat futures, sources added.

 

In pit trades, Fortis bought 1,200 May. Rosenthal, Fimat and Man Financial each bought 300 March. Iowa Grains sold 500 March, while Rand Financial sold 500 March.

 

Still, wheat is fundamentally weak because export demand has been sluggish, traders said. Increased winter wheat seedings and generally favorable weather in wheat-growing areas also are negative, they noted.

 

"There are no real weather problems here or overseas," Kleist said. "Supplies are expected to get a lot looser once we get into spring and summer."

 

News that Egyptian wheat importers signed contracts for 1.05 million metric tonnes of Kazakh wheat added further fundamental pressure, sources noted. The contracts were worth US$225 million, with the first 60,000 tonnes expected to be delivered Friday, Egypt's Ministry of Trade and Industry said Wednesday.

 

Egypt's main state wheat buyer, the General Authority for Supply Commodities also recently bought Kazakh wheat in a tender from local suppliers.

 

The news showed the Black Sea region still has wheat available for sale and remains a competitor with the U.S. for export business, traders noted. Egypt has been a routine buyer of U.S. wheat in the past, they added.

 

"They were a thorn in our side for quite a while and now they're back being a thorn again," Kleist said about wheat-producing countries in Black Sea region. "There's a lot of competition for food wheat."

 

In other news, Argentina's Agriculture Secretariat kept its forecast for wheat production unchanged at 13.7 million tonnes. Analysts, meanwhile, predict the current crop will produce between 13.9 million tonnes and 15 million tonnes.

 

The USDA has pegged Argentine wheat production at 14.2 million tonnes, while the Buenos Aires Cereals Exchange puts production at 13.8 million tonnes. As of Jan. 11, Argentina's farmers had harvested 99% of the 2006-07 wheat crop, the Secretariat said in its weekly crop report Friday.

 

 

Kansas City Board of Trade

 

KCBT wheat futures watched the movements in CBOT corn during the day session, a floor source said.

 

Inter-market spread trading was another feature of the day session with participants buying Kansas City and selling Chicago, he noted. That activity gave KCBT futures some support, the source said.

 

There also was some commission house buying, the source said. Overall, trading volume was moderate, he said.

 

There is usually a lack of fundamental news this time of year as the wheat crop lies dormant, the source added.

 

"Right now the market's keyed on the corn," he said. "We'll keep an eye on it. We're searching for direction. Right now, corns giving us the majority of our direction."

 

In pit trades, Frontier bought 600 July.

 

 

Minneapolis Grain Exchange

 

Like KCBT, MGE wheat futures looked to the CBOT corn market for direction, a floor source said. There was early speculative buying after corn and CBOT soybeans opened stronger, he added.

 

In other news, western Canadian farmers will be given the chance to vote on how they want their wheat marketed at an "appropriate time," according to a news release from Chuck Strahl, Canada's minister of agriculture and agri-food and minister for the Canadian Wheat Board.

 

The CWB is currently the sole marketer of all the wheat and barley grown in western Canada, aside from those supplies used as feed domestically. A farmer plebiscite, or direct vote, on barley has already been announced, with the voting process to begin on Jan. 31.