February 26, 2008

 

US Wheat Review on Monday: Minneapolis Grain Exchange March surges to record US$25/bushel

 

 

Supply fears sparked a jaw-dropping rally in U.S. wheat futures Monday, with Minneapolis Grain Exchange March wheat climbing nearly 25% on the day, trader said.

 

MGE March wheat hit a record high of US$25 per bushel before closing up US$4.75 at US$24. Supplies of high-protein spring wheat, traded at the MGE, are low and demand remains strong, traders said.

 

Chicago Board of Trade May wheat closed limit up, 60 cents higher, at US$11.75. Kansas City Board of Trade May wheat was limit up, 60 cents higher, at US$11.75. MGE May wheat was limit up, 90 cents higher, at US$17.08 1/4.

 

News that Kazakhstan plans to curb grain exports starting March 1 helped kick off the rally in wheat, analysts said. Kazakhstan typically produces high-quality wheat and has been a strong competitor for export sales to Egypt, an analyst said.

 

The restriction of exports from Kazakhstan, through export tariffs, reminds traders that there are not many sources of wheat left in the world, an analyst said. Neighboring Russia has already imposed a wheat export tax of 40%.

 

Mostly CBOT wheat was following along with the MGE rally, traders said. CBOT May wheat was synthetically trading around US$12.55 at the close, while new-crop CBOT July wheat was trading around US$10.95, a floor trader said. Commodity funds bought an estimated 1,000 contracts.

 

The CBOT, KCBT and MGE on Tuesday will increase their daily trading limits for wheat futures, the exchanges said Monday. The daily limit for CBOT and KCBT wheat will rise to 90 cents from 60 cents. The limit for MGE wheat will jump to US$1.35 from 90 cents. The three exchanges earlier this month increased their base daily limits to 60 cents from 30 cents and said they would increase limits by another 50% if at least two contract months within a crop year closed at limit bid or offer. Spot-month MGE March wheat is now trading without any limits, while the exchange's deferred contracts climbed their pre-existing 90-cent limit.

 

 

Kansas City Board of Trade

 

KCBT May wheat was synthetically trading 40 to 60 cents higher heading into the close, a KCBT trader said. New-crop KCBT July wheat closed limit up, 60 cents higher, at US$11.25 3/4 and was synthetically trading 10 to 20 cents above that level at the close, he said.

 

Many KCBT contract ended limit up amid spillover from the rally at the MGE, traders said. Reports of drought damage in China also reignited concerns about tight global wheat supplies, a KCBT floor trader said.

 

A spring drought had affected 11.07 million hectares of farming acreage in China as of Saturday, said the Office of State Flood Control and Drought Relief Headquarters over the weekend. Of that amount, about 317,333 hectares of crops were affected by a drought, which started from last winter, in northern part of the country, it said in a statement published on its Web site. Meanwhile, some 1.33 million hectares of winter wheat in east China face a water shortage, it said. Northern China's spring planting of major crops such as soybean and corn, will start from April.

 

"We're back to trading the tight supplies," the KCBT floor trader said.

 

 

Minneapolis Grain Exchange

 

MGE March wheat was the leader of the wheat rally, traders said. The contract surged nearly 25% Monday and is up nearly 132% on the year.

 

There were wide price swings in MGE March wheat, with the contract at time jumping by 50 cents and US$1, as open interest is low, a MGE floor trader said. As of the close Friday, open interest in the March future was 2,021 contracts, according to the MGE. It probably dropped to about 1,000 contracts Monday, a MGE floor trader said.

 

"There just wasn't a lot out there in the March," the trader said.

 

The Kazakhstan news was construed as bullish, with some analysts saying export quotas in the country reminded traders about tight world supplies. However, the market's main focus continues to be on tight U.S. supplies of high-protein spring wheat, traded at the MGE, a floor trader said.

 

"It seems like right now spring wheat is just the story," the trader said. "Spring wheat doesn't compete very much with wheat out of Kazakhstan."

 

MGE May wheat was synthetically trading about US$2.50 higher at the close, the trader said.