March 30, 2007

 

US Wheat Review on Thursday: Ends higher on pre-report short-covering

 

 

U.S. wheat futures Thursday closed firmer but off session highs on short-covering ahead of the release of government reports on U.S. prospective plantings and grain stocks, traders and analysts said.

 

Chicago Board of Trade May wheat finished 4 1/2 cents higher at US$4.61 per bushel. Kansas City Board of Trade May wheat ended up 1 3/4 cents at US$4.72 1/4, and Minneapolis Grain Exchange May wheat settled 3 3/4 cents higher at US$5.02 3/4.

 

It was the highest close for CBOT May wheat since March 23. The session high for the contract was US$4.68 1/2.

 

Market participants were primarily squaring up positions before the U.S. Department of Agriculture puts out its estimates for spring planting intentions and grain stocks, analysts said.

 

"Nobody wants to be short going into that report," said Jim Smitherman, president of Harvest Trading Group. "Whether you want to be long, that's a different story."

 

Wheat was lower around midday but "got a little bit of the 'oomph' that started the short covering from the corn," Smitherman said. "I think the corn got it from the crude oil. It's kind of like everybody was feeding off everybody else."

 

Fund buying of an estimated 2,500 contracts at CBOT also boosted prices, traders said.

 

The USDA's estimates will determine how wheat futures start out in Friday's day session, analysts said. The report is more important for corn and soybeans, and sharp movements in corn will likely drag wheat along, they said.

 

Analysts expect U.S. farmers will shift millions of acres of farmland to corn this year, largely at the expense of soybeans, although the size of the shift is still up in the air. The move would come as producers look to take advantage of high corn prices and growing demand for ethanol.

 

In the reports, the USDA is expected to lower its estimate for some U.S. spring wheat acres because of a shift of farmland to corn, analysts said. Of 14 analysts surveyed by Dow Jones Newswires, the average estimate for spring wheat plantings was 13.676 million acres, down from 14.899 million in 2006. The analyst estimates ranged from 12.5 million to 14.4 million acres.

 

The USDA is expected to drop its estimate for U.S. wheat stocks as of March 1 because of slightly higher exports, a slowdown in imports and reports of some feedyards feeding wheat to cattle, the analysts said. The average of 12 analysts' guesses put stocks at 881 million bushels, compared to 1.315 billion in December 2006. In March 2006, the USDA's estimate of wheat stocks stood at 972 million.

 

In other news, no significant recovery is expected in world wheat stocks in 2007-08, despite a forecast for a sizable jump in output, according a new report issued by the International Grain Council. The agency also looks for carryout in the world's five major wheat exporters to rise only 1 million metric tonnes on the year to 38 million metric tonnes.

 

IGC forecasts the 2007-08 world wheat crop at 624 million tonnes, which is unchanged from last month's estimate, but up 34 million on the year. IGC said crop conditions remain mostly favorable in the northern hemisphere, but points out that there have been overly wet conditions in India and a drought in Morocco.

 

The IGC estimates may impact trading later in the year, but the markets on Thursday were focused on the upcoming USDA reports, Smitherman said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures saw an "up and down day" as prices followed movements at the CBOT, a floor trader said. Market participants were largely evening up positions ahead of the USDA report, he said.

 

Moisture in the U.S. Southern Plains remains beneficial for the hard red winter wheat crop and bearish for the market, traders said. Favorable weather has bolstered expectations for a big yield, they said.

 

Severe thunderstorms spawned tornadoes in the Southern Plains Wednesday night, dropping up to an inch and a half of moisture scattered from central Nebraska through western and central Kansas and Oklahoma into the Texas Panhandle, according to DTN Meteorlogix.

 

Up to 1.5 more inches is expected Friday, the weather firm said. In Colorado and western Kansas and Nebraska, rain could turn to snow. The region is expected to be drier Saturday and Sunday, but scattered showers might return on Monday, Meteorlogix said.

 

"The weather's been good," a KCBT floor trader said. "Everybody's focused on this report tomorrow.

 

 

Minneapolis Grain Exchange

 

Activity at the MGE trailed action at the CBOT, a floor trader said. The market is waiting for the USDA's report to be released Friday, he added.

 

There was some light inter-market spread trading during the session with traders buying Minneapolis and selling Chicago, the trader said.