April 14, 2007

 

US Wheat Review on Friday: Up sharply on technicals, funds, ratings

 

 

U.S. wheat futures closed sharply higher Friday on fund buying, technical strength and expectations that condition ratings for the winter wheat crop will drop further after a hard freeze last weekend, analysts said.

 

Chicago Board of Trade May wheat climbed 20 1/2 cents to US$4.78 1/2 per bushel, the contract's highest close since March 5. Kansas City Board of Trade May wheat finished up 11 1/4 cents at US$4.95 3/4, the contract's highest close since March 12. Minneapolis Grain Exchange May wheat closed up 11 1/2 cents at US$5.18 3/4, the contract's highest close since Feb. 28.

 

Commodity funds bought an estimated 13,000 contracts at CBOT. The fund buying came in as wheat broke above key 50-day moving averages and triggered some stops, a floor trader said.

 

In CBOT pit trades, Man Financial bought 1,300 May. FC Stonnee, Calyon, Fimat, Iowa Grains and Rand each bought 500 May. Tenco, Man Financial and Rand also bought 500 July.

 

The USDA on Monday is slated release its crop progress report as of April 15, and traders said they expected ratings to reflect more damage from the recent hard freeze. The agency said 64% of the crop was rated in good to excellent condition as of April 8, compared with 71% as of April 1.

 

AgResource Co., a Chicago-based agricultural advisory and research firm, predicted a 6- to 10-percentage-point drop in good-to-excellent ratings Monday. A crop rating of excellent indicates crop yield prospects are above normal, while a good rating indicates normal yield potential.

 

Producers have been working to determine the extent of damage from the freeze in hard red winter wheat fields of the Plains and soft red winter wheat fields in the eastern Midwest. They must wait, however, for warmer conditions to arrive to determine whether the plants will "grow out" of any visible injuries, agronomists said.

 

"There's a lot of uncertainty," said John Kleist, senior analyst at Top Third Ag in Chicago. "We are going to uncover damage, but it's going to an ongoing process."

 

The markets usually rally several times during a growing season on ideas the crop has been wiped out, analysts said. Still, reports from producers in Kansas, the country's top-wheat producing state, have indicated some fields were "really getting trashed" because of the cold, Kleist said.

 

Weekly U.S. wheat export sales also remained supportive to prices, traders said. The USDA reported Thursday that export sales for the week ended April 5 were 67% above the prior four-week average.

 

But activity in recent months has shown sharp rallies in wheat futures often leads to a shut off in demand, Kleist said. That means, in order for wheat prices to stay strong, definitive reports of freeze damage will have to surface, he said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures finished higher on fund buying and ideas that the winter wheat crop suffered notable damage from the weekend freeze, a floor trader said.

 

The industry is openly discussing hard red winter wheat losses of 100 million to 130 million bushels with soft red winter wheat losses pegged at 50 million to 70 million bushels, AgResource said in a daily market comment Friday. It's still too early to discuss actual freeze-related costs, although the losses would contribute to a tighter 2007-08 U.S. wheat balance sheet, the firm said.

 

The DTN Meteorlogix forecast for this weekend calls for rain and snow in much of the Southern Plains through the Texas Panhandle. Plains snowfall may total up to six inches in eastern Colorado, western Kansas and the northern Texas Panhandle. Rainfall of up to 1 1/2 inches will cover the remainder of the Southern Plains wheat area through the southern Midwest.

 

 

Minneapolis Grain Exchange

 

Strong inter-market buying between MGE and CBOT was a main feature of the day, a MGE floor trader said. Traders were buying MGE December and selling CBOT December, he said.

 

Fund buying of an estimated 1,000 contracts hit some stops and sent prices higher, he said.

 

"Fund buying across all the wheat pits today is pretty evident," the trader said.