February 27, 2008

 

US Wheat Review on Tuesday: Contracts end limit up on supply woes

 

 

U.S. wheat futures closed limit up Tuesday, as some contracts hit record highs in an extension of Monday's intense rally on supply concerns, analysts said.

 

Daily trading limits at all three exchanges will increase Wednesday following the limit-up gains.

 

Chicago Board of Trade May wheat ended up 90 cents at a new all-time high of US$12.14 1/2 per bushel. Kansas City Board of Trade May wheat closed up 90 cents at a record US$12.65, and Minneapolis Grain Exchange May wheat finished up US$1.35 at US$18.43 1/4.

 

The MGE remained the leader as traders' focus remained stuck on short supplies of spring wheat, traded at the exchange, an analyst said. CBOT and KCBT wheat futures felt spillover support, he said.

 

"There just is a definite shortage of available wheat," said Jim Bower, owner of Bower Trading. "The market wants more spring wheat acres to be planted this spring and more soybean acres, most likely at the expense of corn. We basically ran out of spring wheat and we ran out of white wheat. The market's got to get that back into balance and the only way to do that is to buy acres."

 

CBOT May wheat was synthetically trading around US$12.79 1/2 to US$12.89 1/2 at the close, a floor trader said. Commodity funds bought an estimated 5,000 contracts at the CBOT.

 

Sellers were reluctant to step out in front of the market after sharp gains Monday, a CBOT floor trader said. Many CBOT, KCBT and MGE wheat contracts Monday finished limit up, while MGE March wheat - which is trading without limits - hit a new high of US$25.

 

There was not much fresh news out for the markets, traders said. Instead, the focus remained on the old-crop tightness, they said. There are expectations that global wheat production will increase in 2008-09 thanks to record high prices, but it will be awhile before new supplies of winter wheat are harvest and even longer before the next spring wheat crop comes online, Bower said.

 

"Once we can finally get to the new crop supply, we'll come down" in prices, Bower said. "Between now and then, we just don't have any wheat."

 

 

Kansas City Board of Trade

 

KCBT May wheat set a new record high of US$12.65 amid spillover support from the MGE and fears about short supplies, traders said. Fund buying of commodities continued to favor commodities in general, a trader added.

 

The CBOT, KCBT and MGE Wednesday will increase daily trading limits for wheat futures, the exchanges said. The daily limit for CBOT and KCBT wheat will rise to US$1.35 from 90 cents. The limit for MGE wheat - except for the spot-month March contract, will jump to US$2.02 1/2 from US$1.35.

 

The three exchanges earlier this month increased their default 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. U.S. wheat futures Tuesday extended a recent rally, with several contracts at all three exchanges closing limit up for the second consecutive day.

 

 

Minneapolis Grain Exchange

 

MGE spring wheat futures continued to lead the wheat markets, traders said. MGE May and July wheat closed limit up, US$1.35 higher, amid supply concerns. MGE May wheat at the close was synthetically trading around US$19.20, floor traders said.

 

Stocks of hard red spring wheat are historically low, and demand remains strong, traders said. The market is trying to ration demand and buy more spring wheat acres, they said.

 

"The guys in Minneapolis are right to be trying to price what is that last bushel worth," said Dave Marshall, an independent marketing advisor and commodities broker.

 

MGE March wheat, which closed Monday up US$4.75 at US$24, stumbled Tuesday in a pullback from the sharp gains. The contract Tuesday closed down US$1.60 at US$22.40.

 

First notice day for the March contract is Friday, and open interest is low. Open interest as of the close Monday was 1,427 contracts, according to the MGE.

 

"March is quickly becoming an afterthought here," a MGE floor trader said. "It's going to become increasingly thin and sporadic. It's better to pretty much just disregard it."