May 25, 2007

 

US Wheat Review on Thursday: Rallies on weather, funds, short-covering

 

 

U.S. wheat futures bolted higher Thursday amid concerns about production problems due to excessive rains in the U.S. Plains and dryness in Ukraine and Europe, analysts said.

 

Short-covering and fund buying also supported the strong gains, traders added.

 

Chicago Board of Trade July wheat ended up 14 1/2 cents at US$4.91 per bushel, the contract's highest close since May 16. Kansas City Board of Trade July wheat settled 12 1/4 cents higher at US$4.80, and Minneapolis Grain Exchange July wheat rose 9 1/2 cents to US$5.15 1/2.

 

Rain of more than six inches caused flooding in central and south-central Kansas Wednesday into early Thursday, damaging hard red winter wheat in some of the traditionally top-yielding sectors of the Plains, according to DTN Meteorlogix. Hail and strong thunderstorm winds also caused damage from western Oklahoma and the Texas Panhandle north to Minnesota, the weather firm said.

 

The Meteorlogix forecast calls for additional rainfall of up to 1.5 inches through the Memorial Day weekend in the central and Southern Plains. Only a minor break in the rainy pattern will occur in the Plains during the first half of next week, the firm said.

 

"This rainfall trend may be too much of a good thing," Meteorlogix said, "due to the danger of flooding with heavy rain, severe weather possibilities, and deterioration of winter wheat quality because of wet and windy weather in the Plains."

 

The excessively wet conditions made market participants particularly nervous coming before the three-day Memorial Day weekend, noted Jason Britt, a broker and analyst at Central State Commodities in Kansas City, Mo. The CBOT will be closed Monday in observance of the holiday.

 

"Anytime that you have a three-day weekend coming up and you have conditions like this, it's putting a little bit of nervousness in" the markets, Britt said.

 

Ukraine is suffering from a prevailing round of hot, dry and windy weather, Meteorlogix reported. Temperatures reaching into the mid-90s Fahrenheit Wednesday were accompanied by hot, dry winds blowing in out of the east, according to the firm.

 

The wind pattern will continue during the next five days, while the dry pattern should stay in place over the next ten days, the firm said. Temperatures will ease back some next week, it added.

 

"There may also be a few showers, but generally the precipitation is below normal," Meteorlogix said. "Dry-weather stress continues in the major crop areas."

 

There are also worries about European production. The International Grain Council trimmed world wheat output for 2007-08 to 620.6 million metric tonnes, down 2.8 million tonnes from last month's projection, due to a dry spring in the E.U. and Morocco.

 

The production concerns come as "balance sheets are already fairly tight," Britt noted.

 

IGC projected 2007-08 world wheat ending stocks to be sharply lower on the year and the lowest since 1981. IGC forecasts world carryout at 115 million metric tonnes, down 2 million tonnes from last month's forecast and 3 million tonnes lower than in 2006-07.

 

Advances in Euronext.liffe wheat futures supported the session's bullish tone, an analyst said. Paris-based November milling wheat set a fresh contract high on the European crop concerns.

 

Looking ahead, U.S. wheat futures could see more of a two-sided trade Friday ahead of the Memorial Day weekend, Britt said.

 

Funds bought an estimated 4,000 contracts at CBOT. In pit trades, Tenco bought 600 September and 500 July, while Fortis bought 500 July. Citigroup and Man Financial each bought 300 September.

 

  

Kansas City Board of Trade

  

Talk among traders was focused on the heavy precipitation falling in the Plains, a KCBT floor broker said. Funds bought an estimated 1,000 contracts. Speculative buying also triggered some buy stops in the range of US$4.75 to US$4.77 in the July contract, he added.

 

Volume was relatively light with market participants seen as reluctant to "commit too heavily to either side" ahead of the long weekend, the broker noted.

 

"Mainly, weather was the talk," he said.

  

 

Minneapolis Grain Exchange   

 

Weekly U.S. wheat export sales were considered strong and supportive to futures prices, a MGE floor trader said. The U.S. Department of Agriculture said 2007-08 sales for the week ended May 17 were 800,300 metric tonnes, above trade estimates of 250,000 to 550,000 tonnes.

 

Major buyers included Iraq, which took 200,000 tonnes, and the Philippines, which bought 74,500 tonnes. Unknown destinations took 174,000 tonnes.

 

Old-crop sales were -136,500 tonnes, combining with the new-crop business for total sales of 663,800 tonnes.

 

In other news, the Canadian Wheat Board lowered its monthly price projections for most grades of wheat and durum that will be sold during the upcoming 2007-08 crop year, which begins Aug. 1. The decline in the price outlook was linked to the strength of the Canadian dollar. In its Pool Return Outlook, or PRO, for wheat, the CWB lowered its PRO by CUS$7 per metric tonne from the April forecast.