May 20, 2006

 

US Wheat Review on Friday: Lower on profit-taking, gold weakness

 

 

U.S. wheat futures ended lower Friday on technical sales and profit-taking after this week's rally to a 9-week top in Kansas City Board of Trade and 3 1/2-year highs in Chicago Board of Trade and Minneapolis Grain Exchange wheat futures, brokers said.

 

Friday's losses in gold futures, dollar strength and light U.S. hard red winter wheat harvest pressure also weighed on U.S. wheat futures, they added.

 

"We're at 9-year highs," one KCBT wheat trader said. "How much higher do we need to be? Next week, we'll be watching the weather."

 

Forecasts called for hot, dry U.S. Plains weather next week, with high temperatures rising into the the 90s to 100s Fahrenheit. The forecasts prompted worries about damage to Nebraska's crop ahead of harvest.

 

Talk that U.S. imports of European and Argentine wheat were economical circulated the U.S. wheat pits Friday, but sources wondered whether the wheat imports would in fact happen.

 

"It definitely pencils," said Charlie Sernatinger, a grain analyst at O'Connor and Co., of importing wheat from both countries.

 

"But the political implication of bringing subsidized EU wheat into the United States will probably stop anyone from actually doing it," he added. "It just underlines that US$5 Kansas City wheat is doing its job."

 

Another trader noted that U.S. logistics for transporting Argentine hard wheat, if it were delivered in Mexico or California, could make any transportation too difficult.

 

"Just because it's economical doesn't mean it will take place," the trader said. "But the big story here is that we'll pick up wheat plantings in the Southern Hemisphere because of these high U.S. prices."

 

All three U.S. wheat futures exchanges raised minimum wheat futures margin requirements this week amid heightened volatility and record wheat futures open interest, with the new margin requirements for the CBOT and MGE wheat futures effective as of the close of business Friday.

 

CBOT July wheat ended down 2 1/4 cents at US$4.16 1/4 per bushel after hitting a 3-1/2-year top this week of US$4.37 per bushel.

 

The 9-day relative strength index for bellwether July closed Friday at 77, above the overbought level of 70.

 

Speculative funds 4,000 CBOT wheat futures contracts, brokers said. Fimat Futures sold about 1,500 July while Rosenthal Collins bought about 2,000 July after buying Thursday about 5,000 July, they noted.

 

Midday spot U.S. HRW and SRW Gulf barge bids were unchanged Friday, cash sources said.

 

In U.S. wheat export news, Jordan bought 70,000 metric tonnes of U.S. hard red winter wheat and 21,627.5 tonnes of hard red spring wheat this week using PL-480 financing, the USDA said.

 

Jordan bought the HRW wheat from Cargill Inc. for delivery in June and July. The HRS wheat was purchased from Louis Dreyfus Corp. for June delivery.

 

In global news, European cash wheat prices were steady to higher Friday amid current tight supplies even as the European Union decided to release of 100,000 tonnes of German wheat and 150,000 tonnes of Polish soft wheat, intervention stocks, back onto the free market.

 

U.S. wheat traders also continued to eye global wheat news including India's wheat tender for 3 million tonnes of wheat for delivery before October, Argentine export news, Russian grain harvest estimates, and any news from China or Iraq.

 

India said it may consider an additional tender to import wheat if it is unable to get the desired amount of specified quality from a recent tender for 3 million tonnes of wheat for delivery to October issued by State Trading Corp. of India, or STC, (512531.BY).

 

U.S. sources have noted the tender sets a maximum limit of 1,000 parts per billion set for the presence of the deoxynivalenol toxin in the imported wheat.

 

U.S. sources have said the standard is unusually high.

 

In Argentina, various media reported Friday that Argentine wheat producers agreed among themselves Thursday to limit their wheat exports in an apparent bid to satisfy the government, which is worried about limited domestic supply driving local prices higher.

 

Speculation that the Argentine government would impose wheat export restrictions helped boost U.S. wheat futures Wednesday to multi-year highs.

 

Traders noted news Friday from Russia's Agriculture Minister that Russia will harvest 70 million to 73 million tonnes of grain in 2006, down from 78.2 million tonnes last year. The estimate was said to be preliminary, with a more accurate estimate due in June.

 

Traders also awaited any news from China about the effect of a severe drought on its winter wheat crop.

 

Finally, Wheat Australia Ltd. was poised to walk away from negotiations to sell 350,000 metric tonnes of wheat to Iraq amid frustration in closing a contract, a source close to the deal said Friday.

 

 

Kansas City Board of Trade

 

KCBT July wheat settled down 2 cents at US$5.04 1/4, below this week's 9-year high of US$5.14 per bushel.

 

The 9-day RSI for the contract closed at 80, still a reflection of overbought conditions.

 

Funds were thought to be net long about 54,000 KCBT wheat futures before Friday's opening bell, about a third of the total open interest, a broker said.

 

ADM was an early buyer of 1,000 July, while Fimat was a net seller of about 350 July in the first half of the session. Fimat also spread 100 July/September.

 

Spot cash 11% through 14% U.S. hard red wheat basis bids were unchanged Friday, according to the KCBT.

 

Cutting of the U.S. winter wheat crop was reported south of Dallas and near Abilene, Texas, with early indications of poor yields and quality, as crop rating reports have suggested throughout the season, they noted.

 

Thousands of wheat acres have been abandoned in Texas, and the dry weather advanced the crop to the extent that harvest began two weeks early, brokers said.

 

 

Minneapolis Grain Exchange

 

MGE July wheat closed down 4 1/4 cents at US$4.69, below this week's 3-1/2-year high of US$4.83 per bushel. The 9-day RSI for the bellwether contract was at 70.

 

Cash U.S. spring wheat basis bids were steady to 5 cents lower Friday, cash sources said. Friday's Minneapolis wheat receipts totaled 93 railcars versus last year's 98 railcars. There were 17 durum receipts versus last year's one car.