March 1, 2008

 

US Wheat Review on Friday: Corrective trade tugs prices lower

 

 

Technical selling and a price correction from the recent highs pressed wheat futures lower after the markets had clearly reached overbought levels, brokers and analysts said Friday.

 

In Chicago, May wheat fell 79 cents to settle at US$10.86 a bushel, Minneapolis May spring wheat was down 10 3/4 cents at US$16.19 3/4 and Kansas City hard red winter May fell 66 cents to US$11.60 a bushel.

 

"Today we saw a little bit more technical selling, a bit more of a correction, and we put most of our losses in early in the day though we did have a little bit of a selling spurt late in the session," said Shawn McCambridge, grains analyst at Prudential-Bache in Chicago.

 

CBOT May wheat fell to a US$10.80 one-week low after technical bears pressured the market into the closing bell. KCBT May reached a four-session low of US$11.59 a bushel, as it also encountered a late bout of selling just ahead of the weekend.

 

After also reaching four-session lows, Minneapolis Grain Exchange May wheat closed nearer to session highs as the bullish fundamentals came to the fore.

 

"I think the market is starting to act a little more fundamentally related, that being Minneapolis should be showing some support relative to the other two," said McCambridge, who added that this development is welcome in traders' eyes after being detached for so long.

 

Profit-taking was also cited for the losses as traders decided to pocket recent gains on the final day of the month.

 

Another pressure point on prices was the raising of CBOT margins on wheat and mini wheat for the second time this week, which makes it more expensive for traders to conduct business. The changes went into effect at the close of business Friday.

 

In addition, increased talk of a general commodities correction after recent, strong rallies may have ratcheted up selling interest in wheat, said Jack Scoville, analyst and vice president at Price Futures Group in Chicago.

 

Deliveries against CBOT March wheat on first-notice day were less than expected at 404 notices, and had little if any effect on prices, a broker said.

 

Technically, CBOT May wheat incurred selling pressure as prices fell below the 10-day moving average and bottomed out just above the 20-day average of US$10.72. It still needs to travel down to US$10.66 in order to fill a chart gap left from the Feb. 25 higher opening, an analyst said.

 

May's relative strength index fell to 50 Friday, after reaching a high of 83 on Wednesday, which took the market out of overbought territory. A reading of 70 or above is normally considered overbought.

 

 

Kansas City Board of Trade

 

KCBT wheat largely mirrored the action in Chicago, with bearish traders asserting their influence at the beginning and then again at session's end.

 

The May contract bottomed out at US$11.59 a bushel, which roughly correlated to the 10-day moving average on the bar chart. Further support is found at the 20-day average near US$11.19, then at a chart gap that runs down to US$11.15.

 

No delivery notices were posted against KCBT March wheat, which was in line with expectations for zero to 700 deliveries.

 

Weather conditions around the world are mostly supportive for wheat, though traders continue to keep an eye on the southern Plains hard red winter areas of Texas and the dry conditions there, McCambridge said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures exhibited the most strength by coming more in line with its bullish fundamentals, McCambrige said, and actually received buying and short-covering interest at session's end to pare earlier losses.

 

Tight stocks and expectations for continued strong wheat demand are expected to be bullish in the future for MGE wheat.

 

No deliveries were reported against MGE March, in line with pre-report estimates of zero to 500, analysts said.