May 12, 2007

 

US Wheat Review on Friday: Ends up on tight stocks, spillover

 

 

U.S. wheat futures made solid gains Friday amid new estimates for tight global ending stocks and supportive rallies in neighboring markets, traders and analysts said.

 

Chicago Board of Trade July wheat closed up 11 1/2 cents at US$4.93 per bushel, Kansas City Board of Trade July wheat rose 5 cents to US$4.76 3/4, and Minneapolis Grain Exchange July wheat settled 8 3/4 cents higher at US$5.19.

 

The U.S. Department of Agriculture's May supply/demand report was seen, in part, as friendly because it pegged world carryover at 113.4 million tonnes, down 6% from 2006-07 and at the lowest since 1981-82.

 

U.S. wheat ending stocks for 2007-08 were estimated 469 million bushels, the second lowest level since 1996-97, according to the USDA. Ending stocks for 2006-07 were reduced 10 million bushels to 412 million, reflecting an increase in the export projection, the USDA said.

 

The tight stocks are more likely to shrink than get larger amidst uncertainties about global production, said Shawn McCambridge, grains analyst with Prudential Financial.

 

The USDA also released new estimated for U.S. wheat production, pegging all-winter wheat production at 1.616 billion bushels, above the average analyst estimate of 1.587, up from 1.298 billion in 2006. Hard red winter wheat production, in particular, was put at 1.028 billion, above the average analyst guess of 974 million and the 2006 production level of 682 million.

 

Still, there remains uncertainty about the condition of the crop after a hard Easter weekend freeze, McCambridge said.

 

"These numbers are more likely to go down than up," he said.

 

CBOT corn and soybeans also rallied after the report, providing bullish enthusiasm and spillover strength to wheat, traders said. Wheat was due to move higher after being oversold, an analyst added.

 

Looking forward, it looks like the market is comfortable at the current price level, an analyst said. Tight stocks and uncertainties over global production in places like Europe and Australia should provide underlying support, although market participants want more definitive information about crop loss in the U.S., he added.

 

 

Kansas City Board of Trade

 

CBOT wheat futures led KCBT as the new USDA winter wheat production estimates show soft red winter wheat was damaged more by an Easter weekend freeze than HRW wheat, a KCBT floor trader said.

 

Along with damage from the freeze, there are some concerns about plant injury from heavy rains that have bombarded the U.S. Southern Plains this week, he added. The precipitation has caused some wheat in Oklahoma to lay down, although the wheat should be able to recover if conditions dry up, agronomists said.

 

Thundershowers brought up to one-half inch of rain to the eastern half of the southern plains wheat areas on Thursday, from southern Kansas to north-central Texas, according to DTN Meteorlogix. A drier weather pattern is in store for this coming weekend, followed by redeveloping thunder showers, with up to one inch of rain from Monday through Wednesday, the weather firm said.

 

 

Minneapolis Grain Exchange

 

MGE followed the lead from gains in CBOT wheat and corn, a floor trader said. Trading started out strong but tonneed down by midday, before revving up again before the close, he added.

 

The larger-than-expected HRW wheat production number looked a bit bearish at first, but weather problems could lead to crop loss, the trader said. That would be especially troublesome amid the tight stocks situation, he said.

 

In other news, the winter wheat crop in Western Canada is off to a good start this spring, with the percentage of the crop killed off by cold temperatures during the winter very low, according to an executive manager with Winter Cereals Canada.

 

Some regions across the prairies with excess moisture on fields have seen some drowning out of the crop, the executive added. Most of the drowning out occurred due to snow melt and not necessarily from the rain Saskatchewan and Alberta received recently, he said.