April 20, 2007

 

US Wheat Review on Thursday: Rallies on fears about crop production

 

 

U.S. wheat futures soared Thursday on expectations that a recent hard freeze will cut U.S. output and with underlying support from international production concerns, traders and analysts said.

 

Chicago Board of Trade July wheat climbed 18 3/4 cents to US$5.07 3/4 per bushel, Kansas City Board of Trade July wheat rose 15 1/2 cents to US$5.04 1/2, and Minneapolis Grain Exchange July wheat ended up 7 1/2 cents at US$5.14 1/2.

 

Ideas that damage to U.S. hard red winter wheat and soft red winter wheat from an Easter weekend cold snap will cut yields were "the driving force" behind the gains, said Louise Gartner, analyst with Spectrum Commodities. There also was some short-covering from participants who shorted the markets after the freeze on thoughts that frost couldn't kill the crop, Gartner added.

 

"The reports we're getting are for pretty significant losses in hard red wheat and soft" red wheat states, Gartner said.

 

HRW wheat is mainly seeded in the Plains and used to make bread. SRW wheat is mainly seeded in the eastern third of the U.S. and baked into snack foods and pastries.

 

Despite the reports of significant crop damage, the concerns about production may not support prices much more in the short-term, analysts said. The trade is getting a "fairly decent" handle on the plant injuries and is "kind of maxing out" on the news for now, Gartner said.

 

In the long-term, prices could feel a boost from evidence of the freeze damage at harvest time, she said.

 

Recent strength in Paris-based milling wheat egged on gains at CBOT, a CBOT floor broker said. Tight global stocks and dryness in wheat-growing countries, including Ukraine and Australia, were further friendly for prices, he added.

 

Parts of the western Ukraine saw rainfall of 0.25-0.75 inch during the past 24 hours, helping to replenish soil moisture for wheat, Meteorlogix said. More rain, however, is needed and little is expected to fall during the next 10 days, the firm said. Also, conditions are expected to turn colder during the 10-day period, slowing development of wheat, Meteorlogix added.

 

In Australia, rain is needed through much of the wheat regions to replenish soil moisture and irrigation and to recover from long term drought conditions, according to Meteorlogix. Planting of the winter wheat crop is set to begin early next month.

 

"Just from a psychological standpoint, if you've got guys short because of the frost and now you're dry in the Ukraine and Russia, and Australia hasn't been able to buy a drop of rain in months guys are thinking, 'I don't know if I want to be short,'" Gartner said.

 

Still, Gartner added that the countries are seeing "developing dryness" and that the situation is not critical.

 

Funds bought an estimated 3,000 contracts at CBOT. In pit trades, Fimat sold 700 July, bought 400 July and spread 800 July/May. Fortis bought 500 July. Citigroup sold 300 July and spread 600 December/July. UBS spread 500 December/July and 500 July/September.

 

 

Kansas City Board of Trade

 

KCBT wheat futures felt strength from concerns about damage to the HRW wheat crop, although there are ideas that more damage was done to SRW wheat areas, a floor trader said. That is reflected in the gains CBOT futures had over KCBT, he added.

 

Nevertheless, freeze damage to hard red winter wheat in Kansas is becoming "very apparent" after an Easter weekend cold snap, the Kansas Association of Wheat Growers said Thursday in a press release. A snowstorm that hit the Plains the weekend after the freeze also damaged the state's wheat crop, association officials said in the release.

 

Kansas producers are anxious to have crop insurance appraisals to determine whether to abandon their wheat and plant spring crops, an Oklahoma-based agribusiness consultant said. It would not be a surprise to see Kansas growers abandon a minimum 300,000 to 500,000 wheat acres, he added.

 

Still, there was not much freeze damage reported in Texas or Oklahoma, the KCBT trader said. Looking ahead, the market will continue to focus on the weather, he added.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures were seen as a follower of CBOT, a floor trader said. Inter-market spreading that has been a feature lately was not heavy on Thursday, he added.

 

In other news, weekly U.S. wheat export sales released Thursday were not seen as having an impact on market activity, the trader said.

 

The U.S. Department of Agriculture reported sales for the week ended April 12 were 342,800 metric tonnes for 2006-07 and 38,500 tonnes for 2007-08, within trade expectations that total sales would range from 200,000 to 400,000 tonnes. Major buyers included Japan, which took 70,600 tonnes; Yemen, which bought 46,000 tonnes; and Jamaica, which bought 42,000 tonnes, according to the USDA.