January 25, 2006

 

US Wheat Review on Tuesday: Higher; CBOT up late on technicals

 

 

U.S. wheat futures ended higher on Tuesday, led by late speculative gains in Chicago Board of Trade soft red winter wheat, the U.S. wheat class with the most bearish fundamental balance sheet, brokers and analysts said.

 

Kansas City Board of Trade hard red winter wheat futures rallied Tuesday as fund buying triggered buy stops, on worries about the drought-stricken U.S. HRW crop and on lingering support from fears of winterkill crop damage to the Eastern European crop, they added.

 

"I attribute most of it (Tuesday's wheat rally) to technical buying, mostly because Chicago outpaced the other exchanges," said Shawn McCambridge, a grain analyst at Prudential Financial.

 

"When you have a market like this, that really tells me it's not fundamentally related," he added. "If it were, those spreads would widen out."

 

"There might be some underlying fundamental support when you look at the conditions over in eastern Europe and also when you look at the possibility of the Southern Plains starting to dry out again," McCambridge added. "And also there are some concerns that we need to provide enough of an incentive to increase (U.S.) spring wheat acreage."

 

CBOT March wheat settled up 6 1/2 cents at US$3.32 1/2 after dipping briefly below the key 50-day moving average of US$3.25 1/4; while May ended up 6 1/4 cents at US$3.43 1/4 per bushel.

 

Commodity funds bought 3,000 to 4,000 lots, with index fund buying noted, brokers said. ABN Amro bought 1,300 March, Citigroup bought 600 March, Deutsche Bank bought 800 December and O'Connor and Co. bought 500 May, brokers said. R.J. O'Brien sold 400 March and Prudential Financial sold 300 March.

 

Cash U.S. soft red winter wheat midday barge bids were steady Tuesday while deferred March fell 1 cent, sources said.

 

Overnight U.S. wheat export sales were quiet while Japan tendered for 121,000 tonnes of wheat for March 15-April 15 shipment, including 80,000 tonnes of U.S. wheat.

 

In global wheat news, the International Grains Council Tuesday forecast a slight decline in global ending stocks during the 2006-07 marketing year due to a decline in northern hemisphere sowings mostly in Russia and Ukraine.

 

But overall growing conditions for the winter crops have been favorable, the IGC indicated.

 

Moreover, a reduction in production will likely be partly matched by a decline in feed use, the IGC said.

 

 

Kansas City Board of Trade

 

KCBT March wheat closed Tuesday up 5 1/2 cents at US$3.85 1/2 per bushel, while May ended up 6 cents at US$3.87.

 

The KCBT March/CBOT March wheat spread settled at 53 cents, premium KCBT, after closing Monday at 54 cents, premium KCBT.

 

Speculative funds, including index funds which buy and hold positions instead of trend-following commodity funds, bought about 1,500 KCBT wheat contracts, much of the balance in December, brokers said.

 

Frontier bought 100 March and sold 950 July; FC Stonnee bought 200 March and 350 December while selling 500 July; Fimat bought 200 December and sold 50 March, 50 May and 100 July, they said.

 

Man Financial bought 200 March, 100 May and 100 July while the Refco division of Man bought 200 march and traded 200 July, they noted.

 

One source noted that if the market could retest Monday's high of US$3.89, a retest of the contract high of US$3.94 could be in order.

 

"If the overnights fail to sustain today's rally, technical pressure could be seen in the morning," the source continued.

 

Kansas City spot cash railcar basis bids for 11% and 12% wheat were steady Tuesday while bids for 13% and 14% ticked up 1 cent per bushel, according to the KCBT.

 

Hutchinson and Kansas City deliverable stocks as of Friday were up slightly from the previous week's level.

 

Midday HRW Gulf spot basis bids steady Tuesday, cash sources said.

 

Concerns about the drought-stressed U.S. hard red winter wheat crop continued to underpin KCBT futures, particularly after Texas reported late Monday that the crop was 85% in poor to very poor shape, a deterioration from last week's 83%.

 

 

Minneapolis Grain Exchange

 

MGE March closed Tuesday up 4 3/4 cents at US$3.92 1/2; and May wheat settled up 4 cents at US$3.95 per bushel.

 

New-crop September set a new contract high of US$3.94 3/4 per bushel and ended up 5 cents at US$3.94 1/2.

 

"I think there is probably some spread activity taking place out there - more technically driven than anything," said Prudential's McCambridge, noting Monday's Informa Economics' estimate of a 1% drop in U.S. spring wheat plantings was "within the bounds" of trade estimates.

 

"I think for the most part, farmers have pretty well decided what they want to do this next season," he added. "But you could pick up or reduce a little bit of acreage up in the Northern Plains area - so I don't think it really had much of a bearing other than just bringing it back to peoples' minds that we do have another crop coming out this spring."

 

Cash U.S. spring wheat basis bids were steady on Tuesday, cash sources said.

 

Minneapolis rail receipts of wheat on Tuesday totaled 106 cars versus last year's 65 cars. Durum receipts totaled 38 cars versus last year's 80 cars.