March 21, 2008

 

US Wheat Review on Thursday: Fund liquidation continues

 

 

U.S. wheat futures collapsed for a second session in a row Thursday, as commodities in general extended a broad-based sell-off. Wheat contracts at all three exchanges suffered heavy losses, though nearby contracts failed to touch the expanded daily price limits of US$1.35 at the Chicago Board of Trade and at the Kansas City Board of Trade.

 

Chicago Board of Trade May wheat closed down 86 1/2 cents at US$9.87 1/2 per bushel. KCBT May wheat closed 91 cents lower at US$10.32, and MGE May wheat was 63 cents lower at US$12.77.

 

Wheat futures opened in negative territory and remained under heavy selling pressure throughout the session. Even bullish news of a larger-than-expected purchase from Egypt failed to lift the market into positive territory.

 

Egypt's state-owned General Authority for Supply Commodities said Thursday it bought 415,000 metric tonnes of U.S. soft red wheat in a tender. Initially the tender was only thought to be for 55,000-60,000 metric tonnes of wheat.

 

Analysts said the amount was a bullish surprise and was significant because it was all U.S. wheat. It revealed that U.S. wheat is competitive in the global market, at least for old crop supplies, sources said.

 

However, despite the news, wheat remained weak amid heavy commodity fund selling pressure, as speculative players continued to exit long positions. Analysts pointed to strength in the U.S. dollar and continued weakness in gold and crude oil as evidence the commodity unwinding continues.

 

Fund selling was estimated at 5000 contracts in Chicago wheat.

 

"If that (Egypt news) had happened a month ago, it would have driven wheat limit up," said Sid Love, grains analyst at Joe Kropf/Sid Love Consulting.

 

While the Egyptian sale may show that U.S. wheat is competitive nearby, overall "U.S. wheat is still very overpriced relative to the rest of the world," said Dan Cekander, grain analyst at Newedge USA, LLC.

 

Looking ahead to next week, Cekander speculated that more speculative fund selling was possible. "I don't think it is over. I think you can see more next week," he said.

 

The Chicago Board of Trade will be closed Friday in observance of the Good Friday holiday.

 

 

Kansas City Board of Trade

 

KCBT May wheat ended down 91 cents at US$10.32 on Thursday, as the contract settled in the lower third of its daily range.

 

"Everybody is getting out of commodities. Nobody wants to own commodities," one KCBT floor trader said.

 

The Kansas May wheat contract fell below its 50-day moving average on Thursday.

 

 

Minneapolis Grain Exchange

 

MGE July wheat closed limit down for the second session in a row. The July contract lost 90 cents to end the day at US$10.80. Nearby MGE May wheat didn't close limit down amid modest demand for old crop spring wheat.

 

Overall, Minneapolis wheat traded lower in tandem with Kansas and Chicago wheat. "We are traveling along with Chicago and Kansas," one floor trader said.

 

The trader highlighted an expansion of the May/July spread Thursday from roughly 170 points on Wednesday to 197 points on Thursday, May over.