June 3, 2006

 

US Wheat Review on Friday: Up on inflation fears before weekend

 

 

U.S. wheat futures ended higher Friday on pre-weekend buying after this week's break to a three-week low in Chicago Board of Trade July wheat amid renewed fears of inflation, brokers said.

 

"The inflation fears have reared their head again, sparking buying in precious metals, crude and grains," a CBOT trader said.

 

Dollar weakness and an expanding drought in key global wheat exporter Australia also underpinned U.S. wheat futures Friday, they said.

 

Moreover, wheat futures were buoyed by new-crop U.S. weekly wheat export sales of 412,400 tonnes; news that Taiwan planned to tender Tuesday for 70,470 tonnes of U.S. wheat; and reports that South Korea bought 20,500 tonnes of U.S. wheat.

 

Talk that U.S. soft red winter wheat may look more attractive to world buyers after Egypt bought French milling wheat at US$174.50 per tonne was also supportive.

 

U.S. SRW wheat had a lackluster 2005-06 export season.

 

In supply-side news, Informa Economics forecast a U.S. 2006 wheat crop of 1.3 billion bushels, a U.S. HRW wheat crop of 700 million bushels and a U.S. SRW wheat crop of 354 million bushels, all below USDA's May 12 estimates.

 

These bullish factors, amid oversold technical signs after Thursday's close, offset seasonal U.S. HRW and SRW wheat harvest pressure Friday, but several analysts suggested the May 23 market tops may have been the near-term highs.

 

"It's not going back to those (high) levels because U.S. harvest is beginning," said Tim Hannagan, a grain analyst at Alaron Trading. "It doesn't matter how bad the harvest is. You're going to have people saying, 'Well, world stocks are tight and U.S. stocks are going to be tight because the crop is small.'

 

"No. We're all done with the supply-side concern of the winter wheat crop and it's now a demand-driven market," he said. "So the top is in and you're going to slowly erode. You're going to get a few little pops from here."

 

CBOT July wheat ended up 11 3/4 cents at US$4.03 3/4 per bushel, above Thursday's 3-week low of US$3.89.

 

Speculative funds bought 2,500 CBOT wheat futures contracts by 1:30 p.m. EDT, brokers said.

 

Tenco Inc. bought 600 July and 400 September; ABN Amro traded 500 July; Calyon bought 400 July; JP Morgan sold 500 July and O'Connor and Co. sold 500 December.

 

CBOT wheat spread trade was modest ahead of the June 30 first notice day for delivery against the July futures contracts. Fimat spread 1,000 September/July, brokers said.

 

Midday spot U.S. Gulf HRW barge bids were not available Friday while SRW bid were unchanged, cash sources said.

 

U.S. winter wheat basis bids have firmed this week, with domestic premiums rising by an average of around 1 cent per bushel, as southern rains stalled harvest from Kansas to Arkansas, sources said.

 

In global wheat news, India said it bought 800,000 tonnes of wheat, about 27% of its original tender for 3 million tonnes and said it would relax quality terms in the next tender.

 

 

Kansas City Board of Trade

 

KCBT July wheat closed Friday up 10 3/4 cents at US$4.94 1/4, above this week's 2-week low of US$4.81 per bushel.

 

Spot cash 11% through 14% U.S. hard red wheat basis bids were unchanged Friday, according to the KCBT.

 

Fair weekend harvest weather was forecast for the U.S. Plains following this week's rains.

 

However, a wheat harvest bulletin issued Friday by the Kansas Department of Commerce generally described the state's fields as "muddy to soft."

 

 

Minneapolis Grain Exchange

 

MGE July settled up 7 cents at US$4.66, above this week's low of US$4.55 1/4, after rallying through its 20-day moving average of US$4.61.

 

Cash spring wheat basis bids were mixed Friday, up 5 cents to down 10 cents, cash sources said. Friday's Minneapolis wheat receipts totaled 119 railcars versus last year's 134 railcars. There were 72 durum receipts versus no cars last year.

 

Traders noted the spring wheat crop remained in good shape, with rains forecast for next week.

 

"Even though the corn and bean belt of the Midwest is going to be very dry from today through next week, the spring wheat and oats states in Minnesota are going to have rain next week," noted Alaron's Hannagan. "So the spring wheat crop is going to improve."