February 29, 2008

 

US Wheat Review on Thursday: Markets sink on profit-taking; emotions rule

 

 

Profit-taking drove U.S. wheat futures sharply lower Thursday as the markets retreated from a run-up to all-time highs, analysts said.

 

The markets were buzzing over news that brokerage firm MF Global suffered a US$141.5 million loss Wednesday from unauthorized trades in Chicago Board of Trade wheat futures. However, the news was not seen as adding pressure to the markets, an analyst said.

 

CBOT May wheat fell 85 cents to US$11.65 per bushel. Kansas City Board of Trade May wheat dropped 82 cents to US$12.26, and Minneapolis Grain Exchange May wheat slid US$1.16 1/2 to US$16.30 1/2.

 

The markets were pulling back after racing to record highs this week, said Bill Nelson, associate vice president of AG Edwards & Sons. There also was some liquidation ahead of first notice day for March futures on Friday, traders said.

 

First notice day is the first day on which notices of intention to deliver actual commodities against futures market positions can be received. Deliveries of 1,000 contracts to 2,500 contracts are expected against CBOT March wheat, traders and analysts said.

 

But emotions continue to dominate the trade amid fears and uncertainty about high prices, huge margins and expanded daily price limits, analysts said.

 

"It's become just a very emotional market, driven by greed and fear," Nelson said. "We've had this tremendous run up. It's hard now to subscribe fundamentals to the wheat market."

 

There was some fundamentally bearish news out. Egypt's state-owned General Authority for Supply Commodities, for one, confirmed it had changed its rules for importing wheat to allow for additional origins to be included. The move was particularly aimed at adding wheat from the European Union and was seen as bearish for U.S. wheat.

 

French industry bodies had lobbied the GASC to ease restrictions on test weights and moisture content to help facilitate more sales to Egypt. Still, traders warned large discounts would need to be included for lower quality wheat.

 

GASC has mostly purchased U.S. and Black Sea wheat this season, but U.S. 2007-08 wheat commitments are now about 96% of the export target. Key exporters in the Black Sea region continue to see governments move to restrict imports.

 

As for the MF Global incident, the firm Thursday revealed a US$141.5 million loss from unauthorized trades in the booming wheat market by one of its representatives. The New York-based futures brokerage blamed the loss on a loophole in systems that limit the size of positions that can be taken.

 

MF Global said the problem has been corrected and has fired the trader involved in the losses, which were run up Wednesday morning.

 

News of the unauthorized trading probably did not contribute to the losses Thursday in the wheat markets, Nelson said.

 

 

Kansas City Board of Trade

 

Profit-taking and increased margins weighed on wheat futures, a KCBT floor trader said. The CBOT, KCBT and MGE have all hiked their minimum margin requirements this week. Deliveries against the KCBT March future are seen at zero to 700 contracts, traders and analysts said.

 

In another piece of bearish news, the International Grains Council increased its forecast for 2008-09 world wheat production to a record 646 million tonnes, up 4 million from January. The new projection represents a rise of 42 million tonnes, or 7% on the year.

 

Weather conditions for winter wheat areas in the European Union and Commonwealth of Independent States remain favorable, the IGC said. However, the agency said dryness in the southern Plains of the U.S. was generating concern, and spring wheat areas in both Canada and the U.S. were in need of rain.

 

The Plains, central Texas and southwestern Oklahoma may get some light precipitation into the weekend, but the central and northern Plains are forecast to be mostly dry, DTN Meteorlogix said. Temperatures will be near to above normal through Saturday, but dropping Sunday and into next week, the private weather firm said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures fell hard on profit-taking as the markets continued to pull back from all-time highs, traders said. No fresh, bullish fundamental news was out, a MGE floor trader added.

 

MGE March wheat, which has led a recent rally in wheat, ended sharply lower again. It closed down US$1.75 at US$18.25. The spot-month contracts are all trading without limits.

 

The revelation about MF Global was the talk of the trading floor, although it was not seen to have a big impact on trading, an MGE trader said. Deliveries against the MGE March futures contract are seen at zero to 500 contracts.