May 10, 2008

 

US Wheat Review on Friday: Market closes lower on bearish USDA report

 

 

The U.S. wheat markets closed lower Friday after the U.S. Department of Agriculture estimated an 8.2% rise in world wheat production for the 2008-09 crop year.

 

Chicago Board of Trade July wheat closed down 17 1/2 cents to US$8.04 1/2 cents a bushel. Kansas City Board of Trade July wheat lost 22 1/2 cents to US$8.45 1/2, and Minneapolis Grain Exchange July wheat slipped 1/4 cents to US$10.03.

 

Despite the weak closing, the markets bounced off the day's lows.

 

"I think the U.S. numbers were pretty much as expected," a trader said, referring to the USDA's 2008-09 all-wheat production estimate of 2.39 billion bushels. "The big thing is the world production year-over-year."

 

World stocks were predicted to rise to a record 656.01 million metric tonnes from 606.4 million metric tonnes a year earlier. The previous record was 628 million metric tonnes.

 

Overall, the report "leaves us open for surprises on lower production, but not higher production," said Kim Anderson, an Oklahoma State University agricultural economist specializing in wheat.

 

Anderson said he expects strong exports through June, July and August until the foreign crop begins to come on line in late August.

 

Commodity funds sold an estimated 2,000 contracts at the CBOT.

 

 

Kansas City Board of Trade

 

The USDA's hard red winter wheat estimate of 1.01 billion bushels exceeded by 100 million Anderson's expectations. But, he said, "I don't know if the report fully anticipates the effect of dryness" in the southwestern production areas.

 

If the world production materializes and U.S. exports tighten, Anderson said feed rations may supplement some HRW for corn, but he anticipated significant supplements to come from soft red wheat. The USDA predicted wheat for feed and residual use would triple in the new crop versus the old crop.

 

 

Minneapolis Grain Exchange

 

The USDA report was mildly bearish for wheat at the MGE.

 

"We'd hoped for some strength from corn, but corn didn't really have any independent strength so we sank on rising stocks," a MGE floor trader said.

 

"The featured play in Minneapolis today was the July-September spread. Everybody loves to play the bull spread, and today they really cranked it," the trader said, noting that MGE July prices only fell back 1/4 cent, while the September contract fell 14 1/4 cents.