June 2, 2007

 

US Wheat Review on Friday: Mostly up on crop woes, tight supplies

 

 

U.S. wheat futures rose to new contract highs Friday, as sellers sat on the sidelines amid ongoing concerns about tight global supplies and potential crop losses, analysts said.

 

Chicago Board of Trade July wheat rose 3 3/4 cents to US$5.20 3/4 per bushel, Kansas City Board of Trade July wheat finished up 3 1/2 cents at US$5.07 1/2, and Minneapolis Grain Exchange July wheat slipped 1 1/2 cents to US$5.35 3/4.

 

Before trimming gains, CBOT July wheat set a new high of US$5.30 1/4, exceeding the previous high of US$5.30 set in April. CBOT July wheat and KCBT July wheat also closed at their highest prices in more than a month.

 

There was little fresh news out, but fears about production problems due to drought in Ukraine and southern Russia remained supportive, analysts said. There was lingering strength from news that Ukraine plans to suspend exports of new-crop wheat until state reserves are formed, they added.

 

The highly-productive Black Soils region of eastern Ukraine and south Russia had dry weather Thursday, according to DTN Meteorlogix. Temperatures topped 90 degrees Fahrenheit for afternoon high temperature values, the weather firm said.

 

The region will have a few thundershowers during the weekend, although "showers will not ease concerns that have developed over the past 10 weeks of dry weather," Meteorlogix said. Temperatures will be notably cooler through next week, but "little improvement to crop conditions will occur due to the persistent dryness," the firm said.

 

Potential crop losses in Ukraine, an aggressive seller of wheat on the world market, come as the world is facing "extremely historically tight stock levels," said Greg Wagner, director of marketing and risk management with Horizon Ag Strategy. The International Grains Council recently forecast world carryout for 2007-08 would drop 3 million tonnes from 2006-07 and reach the lowest level since 1981.

 

The combination of possible production problems and tight stocks kept sellers on the sidelines, said Shawn McCambridge, analyst with Prudential Financial in Chicago.

 

"No one really wants to get really aggressive on this because if we are taking production losses, we're looking at a tighter balance sheet and probably higher prices," McCambridge said.

 

Wheat futures typically slump going into harvest as producers prepare to bring new supplies online. Seasonal weakness will eventually show up, although it will likely be tempered if perceptions about production losses persist, McCambridge said.

 

Commodity fund buying of an estimated 2,000 contracts at CBOT also was supportive.

 

Open interest in CBOT wheat rose 4,906 contracts Thursday after going up 7,665 contracts Wednesday, suggesting new buyers are returning to the market, analysts said.

 

"It's clear there's fresh money coming into the market," Wagner said.

  

 

Kansas City Board of Trade

 

KCBT futures felt strength from weekend forecasts for continued wetness in the U.S. Southern Plains, a KCBT floor broker said. Precipitation has delayed harvest in Oklahoma and Texas, caused some flooding and damaged plants, he added.

 

There is talk the USDA's weekly crop progress report Monday will show additional declines in the condition of winter wheat. In its weekly crop progress report, the U.S. Department of Agriculture on Tuesday rated 57% of the country's winter wheat crop in good-to-excellent condition as of May 27, down from 59% a week earlier.

 

"I would look for a slight deterioration," Wagner said. "I think that would not come as a surprise."

 

A combination of the damage from an Easter weekend freeze, rust disease, wet weather, armyworms, and flooding is taking a toll on the crop from north central Kansas to south central Oklahoma, said Tom Leffler, analyst with Leffler Commodities in Augusta, Kan.

 

"We are hearing of more and more fields that are being zeroed out by insurance adjusters and others with the yield in the single digits," Leffler said Friday in a market comment. "We will be shocked if next Monday's condition rating does not reflect this."

  

 

Minneapolis Grain Exchange

 

MGE July wheat stumbled on selling in the July/Sep spread, a floor trader said. Trading was busy at points during the day session, mostly focusing on the spread, he added.

 

There also was some inter-market trading between MGE and CBOT, the trader said. Ideas that the spring wheat crop is off to a strong start were bearish, he noted.