June 4, 2008

 

US Wheat Review on Tuesday: Falls hard in setback from Monday's gains

 

 

U.S. wheat futures closed sharply lower Tuesday as the markets pulled back from strong gains Monday amid pressure from the advancing harvest.

 

Chicago Board of Trade July wheat closed down 32 cents at US$7.50 1/2 per bushel. Kansas City Board of Trade July wheat closed down 33 cents at US$7.88. Minneapolis Grain Exchange July wheat closed limit down, or 60 cents lower, at US$9.75.

 

Traders saw Monday's rally as creating "another selling opportunity ahead of harvest," said Brian Hoops, president of Midwest Market Solutions. The markets climbed Monday on technical buying and did not have bullish fundamentals to back up the rally, he said.

 

Fundamentals for wheat are considered bearish amid projections for a record world crop in 2008-09. Expanded plantings and favorable weather are supporting ideas of strong production.

 

"We're still in a downtrend," Hoops said.

 

Advancing harvest activity in the U.S. also is seen as bearish. Cutting of soft red winter wheat should pick up speed in the southern Delta this week if forecasts for dry weather hold true, agronomists said.

 

Weakness in neighboring and outside markets added pressure to wheat, traders said. CBOT corn, soybeans and crude oil ended in negative territory.

 

Some market participants also pointed to new Commodity Futures Trading Commission initiatives as weighing on CBOT agriculture markets. The CFTC said it will increase transparency regarding index traders and swaps dealers. The agency's new initiatives could cause further long liquidation in the agriculture markets, even though the new rules are not considered surprising, Hoops said.

 

 

Kansas City Board of Trade

 

Profit-taking pulled KCBT wheat lower amid a lack of fresh bullish news to extend Monday's gains, a floor trader said. KCBT wheat slipped with other agriculture markets following the CFTC announcement. A steep slide in crude oil also was seen as bearish for the markets.

 

Looking at weather in hard red winter wheat regions, the driest areas of southeast Colorado, extreme southwest Kansas and west Texas will likely see little significant shower activity during the next 10 days, according to DTN Meteorlogix. Dry soils should promote hot temperatures in the areas, increasing stress to wheat.

 

However, harvest conditions will be favorable for ripening wheat in the southern Plains. The balance of the region should have favorable conditions for wheat, Meteorlogix said.

 

 

Minneapolis Grain Exchange

 

MGE July wheat fell the daily, exchange-imposed limit of 60 cents. As a result, the daily trading limit at MGE expands to 90 cents Wednesday. The limit will remain 60 cents at the CBOT and KCBT.

 

MGE wheat started to slide as the market followed setbacks at the CBOT and KCBT, an analyst said. MGE volume is thin, and activity is volatile, he said.

 

The CFTC announcement had traders on edge but should not have a big impact on prices at the MGE. Index funds do not trade much at the MGE, traders said.