February 29, 2008

 

CBOT March wheat deliveries seen at 1,000-2,500 lots

 

 

The Chicago wheat market may see anywhere from 1,000-2,500 contracts delivered when the Chicago Board of Trade (CBOT) issues notices on the March contract's first delivery day, traders and analysts said.

 

Shawn McCambridge, analyst at Prudential Bache in Chicago, said it should be a common delivery period, a relief over some concerns earlier in the month, especially in the Minneapolis market.

 

At current prices, the Chicago March/May wheat spread is trading from a 9 1/2-cent to a 10-cent "carry," making it beneficial to hold wheat instead of putting it up for delivery, said Joe Victor, vice president of marketing at Allendale in McHenry, Illinois.

 

The market only needs to see a 7-cent carry to make it profitable to retain the wheat. Carry is the cost of taking delivery and includes storage, insurance and interest on the wheat.

 

Due to these factors, Victor also expects deliveries to be light and in a range of just 500-1,000 lots.

 

With wheat being such a "precious commodity" and highly sought, holding on to it at this point would be an advantage, Victor explained.

 

Deliverable stocks in CBOT-approved warehouses totaled 6.55 million bushels as of Tuesday.

 

Open interest in March wheat at the close of Wednesday's business was 10,361 contracts.

 

While light deliveries are expected overall, the best chance for a surprise would likely come in the Minneapolis Grain Exchange or Kansas City Board of Trade markets, McCambridge said.

 

However, strong basis levels, or the difference between the cash prices and futures contracts, and the tight stocks are expected to prevent any big surprises.

 

At the Minneapolis Grain Exchange (MGE), traders expect from zero to 500 deliveries against the March spring wheat contract.

 

The MGE March/May spread is trading at just over a 2-cent premium, and the tight stocks situation makes it less likely for heavier-than-normal deliveries to occur, a broker said.

 

Open interest in MGE March spring wheat stood at 349 lots at Wednesday's close, with deliverable stocks in Minneapolis totaling 1.23 million and 12.74 million in Duluth, the exchange reported.