May 16, 2007

 

US Wheat Review on Tuesday: Advances on spillover, global weather

 

 

Spillover strength from gains in neighboring markets, combined with global weather concerns, pushed U.S. wheat futures to close firmer Tuesday, analysts said.

 

Chicago Board of Trade July wheat rose 5 1/2 cents to US$5.02 per bushel; Kansas City Board of Trade July wheat climbed 9 cents to US$4.89 1/2, and Minneapolis Grain Exchange July wheat settled 2 1/2 cents higher at US$5.23 3/4.

 

CBOT corn and soybean futures advanced during the day session, spurring wheat to tag along to the upside, said Jerry Gidel, market analyst with North America Risk Management Services Inc. He described wheat's activity as indicative of a "me-too market."

 

There also are concerns about ongoing dryness in central China and other major wheat-producing countries, analysts said. Conditions on the North China Plain will stay drier than normal and turn hot at times during the next seven days, which will increase stress to winter wheat, DTN Meteorlogix said in a daily forecast.

 

Rain fell in central Europe again Monday, with notable totals in Germany, southern France and western Poland, Meteorlogix said. However, other areas of Europe are drier. In the Ukraine, notably dry conditions remain "locked in place" over the country, which is stressful for winter wheat, according to Meteorlogix.

 

Australia's wheat areas had mostly dry weather Monday, although conditions are more promising for the rest of the week in some sectors, Meteorlogix said. There is a good chance of showers in New South Wales and Victoria wheat country during the next five days.

 

"This moisture would be welcome but would not be enough to end the long-term drought in Australia," Meteorlogix said.

 

Fears about weather-related production problems have an amplified importance this year as global ending stocks are forecast to drop to historically-tight levels, traders said. The U.S. Department of Agriculture's May supply and demand report pegged world carryover at 113.4 million tonnes, down 6% from 2006-07 and at the lowest level since 1981-82.

 

U.S. wheat ending stocks for 2007-08 are estimated at 469 million bushels, the second lowest level since 1996-97, according to the USDA. Ending stocks for 2006-07 are estimated at 412 million.

 

In early trading, CBOT futures slipped lower on follow-through from overnight losses and pressure from improvements in winter wheat condition ratings. CBOT led the downside in early activity as the USDA's weekly crop progress report reflected "big" condition improvements to soft red winter wheat states, including an 11 percentage point increase in Illinois' good-to-excellent rating, a trader said.

 

But the world situation should give CBOT July wheat enough underlying strength to stay above US$4.50 in the near term, Gidel said. The trade will keep its eyes on weather forecasts for any signs of improvement or deterioration in conditions, a CBOT floor broker added.

 

Monday's high of US$5.03 1/2 was seen as solid overhead technical resistance for the bulls to overcome Tuesday, a technical analyst said. A downtrend line was in place on the daily bar chart, drawn off the late-April contract high of US$5.30 and Monday's high.

 

In pit trades, Fimat bought 500 July. Funds bought an estimated 2,000 contracts.

  

 

Kansas City Board of Trade

 

KCBT led the upside with support from Fimat buying around 800 July, a KCBT floor trader said. The advances in corn also inspired wheat's gains, he added.

 

Along with global weather concerns, there are fears about disease pressure on the U.S. winter wheat crop, Gidel said. In Kansas, the nation's top hard red winter wheat-producing state, powdery mildew, leaf rust and some stripe rust has been found on plants.

 

In the northern sector of the U.S. Plains, showers of up to three-quarters of an inch occurred Monday, and additional showers are headed for the region before a drier weather spell sets in Thursday, Meteorlogix said. Next week brings above normal rainfall back into the outlook, according to the weather firm.

 

"This generally unsettled weather pattern is not favorable for winter wheat, due to a possible loss in quality along with development of moisture-aided diseases," Meteorlogix said.

 

  

Minneapolis Grain Exchange

  

MGE futures "reluctantly" followed CBOT and KCBT prices to the upside amid pressure from strong spring wheat planting progress and the crop's "excellent" condition, an MGE trader said. As of May 13, 87% of the spring wheat crop had been planted, compared to 76% last year and the five-year average of 74%, according to the USDA. And 79% of the crop was in good-to-excellent condition, sharply higher than the 32% reported last year.

 

"The crop looks great," the MGE trader said.

 

In other news, Saskatchewan farmers are ahead of schedule with planting their crops, according to the Saskatchewan Agriculture and Food's weekly crop report. According to the report, 28% of spring wheat has been planted.