January 20, 2006

 

US Wheat Review on Thursday: Higher on iraq talk, oversold ideas

 

 

Wheat futures rose Thursday on rumors that Iraq may have purchased or is in line to purchase U.S. hard wheat, with the most pronounced gains coming in the Kansas City and Minneapolis markets where hard wheat is traded, sources said.

 

The higher prices also were backed by technically oversold conditions, tight old-crop wheat supplies, dryness over the southern Plains' hard red winter areas and a cold snap in Russia.

 

Kansas City Board of Trade March wheat settled 10 1/4 cents higher at US$3.83 a bushel; Minneapolis Grain Exchange March was up 7 1/2 cents to US$3.90; and Chicago Board of Trade March was up 4 cents to US$3.26 1/2.

 

Rumors circulated around the trading floors that Iraq tendered for 100,000-150,000 tonnes of optional-origin wheat. This, however, couldn't be confirmed during market hours, and many traders didn't know if this was old or fresh news, since speculation on the potential for Iraqi business has been in the market for a few weeks.

 

"I think it's kind of old news and maybe new news. But I think people are looking at it and saying: 'OK, if we were able to sell another million tonnes of hard red winter wheat and we have production losses, the balance sheet tightens up pretty good,'" said Shawn McCambridge, senior grains analyst at Prudential-Financial in Chicago.

 

After the market close, a government official confirmed the tender to Dow Jones Newswires.

 

The market also benefited from an early lack of follow-through selling, sources said.

 

Technically, wheat futures were oversold and traders tried probing the downside early in the session. When no follow-through selling was uncovered, buyers entered the market and took prices higher, McCambridge said.

 

In other export news, Japan bought 70,000 tonnes of U.S. wheat as part of an overall tender for 115,000 tonnes. South Korea sought 20,000 tonnes of U.S. wheat in a tender to be concluded Friday.

 

The U.S. Department of Agriculture will issue its weekly export sales report Friday, one day later than normal because of the Martin Luther King Jr. holiday.

 

In world news, Pakistan may import 400,000-500,000 metric tonnes of wheat in 2006, despite an expected bumper crop this year, Pakistani officials said.

 

Extremely cold temperatures in Russia pose a threat to the wheat crops there, though the effect on the market was muted, sources said.

 

Meanwhile, strength in Chicago and Minneapolis was mostly in reaction to the rally in Kansas City.

 

"The other markets just kind of grabbed onto the coattails and followed the Kansas City market higher, while also having the support of oversold ideas," McCambridge said.

 

 

CHICAGO BOARD OF TRADE

 

At the CBOT, funds bought an estimated 2,500 contracts, supporting the market.

 

Calyon Financial bought 1,000 March, Fimat bought a net 800 March and JP Morgan bought 200 March.

 

Cargill sold 500 March.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT March traded to a US$3.83 1/2 high, passing through layers of moving-average resistance on the way up and triggering buy stops, a floor trader said. A lack of selling combined with the stops propelled values higher.

 

Volume wasn't particularly heavy and much of the action was dominated by locals, he said.

 

ADM sold 100 March, 200 July and 100 December. ABN Amro sold 450 May, Fimat sold 400 March and 150 May, Goldenberg Hehmeyer sold 100 Mar, Refco sold 150 July and Shay Grain sold 350 March and 200 July.

 

Frontier Futures bought a net 150 March and 500 July; ABN Amro bought 100 March; FCStonnee bought 300 December and 100 July; Man Financial bought 300 March and 100 July; Refco bought a net 100 March and 270 May; and UBS bought 250 March.

 

UBS was a noted spreader of the May/July contracts.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

Minneapolis Grain Exchange wheat also gained on light volume, a lack of aggressive selling, which has been the case in recent weeks, and spillover support from Kansas City, a floor trader said.

 

The MGE market continues to hold a premium over the KCBT, he added. That spread settled at 7 cents Thursday, basis March futures.

 

The KCBT/CBOT spread settled at 56 1/2 cents, KCBT over.

 

In Minneapolis, ADM bought 100 December, 100 May and 200 March, but also sold 250 March and 100 September. Country Hedging sold 150 March, Fimat sold 200 March, and Prudential sold 100 March and 200 July.