June 12, 2007

 

US Wheat Review on Tuesday: 11-year high for front-month CBOT wheat

 

 

U.S. wheat futures set new contract highs Monday on a bullish government crop report, with Chicago Board of Trade July wheat elbowing its way to an 11-year high for a front-month contract, analysts said.

 

CBOT July wheat closed 28 1/2 cents higher at US$5.56 per bushel, Kansas City Board of Trade July wheat finished up 30 cents at US$5.48 1/2, and Minneapolis Grain Exchange July wheat rose 24 cents to US$5.56. Prices hit limit up, or 30 cents higher, at all three exchanges.

 

CBOT July wheat's session high of US$5.57 1/2 exceeded its previous contract high of US$5.36 and last fall's 10-year high of US$5.57 for a front-month contract.

 

The U.S. Department of Agriculture, in its June supply and demand report, trimmed its estimate for 2007-08 U.S. all winter wheat production, a "bullish surprise" for the trade, analysts said. Winter wheat production was put at 1.610 billion bushels, under the average trade guess of 1.640 billion bushels and the May estimate of 1.616 billion.

 

In particular, the agency lowered its soft red winter wheat estimate to 341 million from 347 million in May. The average trade guess was 350 million.

 

Analysts had expected to see an increase in production from the May estimate amid ideas the SRW wheat crop was recovering from a hard freeze Easter weekend.

 

"Everybody got enthusiastic about crop conditions improving over the last month," said Jerry Gidel, analyst at North America Risk Management Services in Chicago. "Then, over the last two weeks, we saw them slip back."

 

The new forecast is the result of a new survey conducted out of concern for damages done during the spring freeze. The USDA announced the new survey last month, saying in a May 23 statement that officials would ask farmers in Arkansas, Georgia, Illinois, Indiana, Kansas, Kentucky, Missouri, Mississippi, North Carolina, South Carolina and Tennessee to participate in the new survey to gauge the effects of freezing weather in April.

 

The USDA also cut its estimate for 2007-08 global wheat ending stocks to 112 million tonnes from 113.4 million, a 30-year low. Analysts had expected a decline amid fears about crop loss in Ukraine and Russia, major exporters that are suffering from a severe drought.

 

Although the smaller production estimate was a surprise, it combined with the stocks estimate to tell the story of a tightening world balance sheet, said Dan Cekander, analyst with Fimat Futures.

 

"It's all part of the story," he said.

 

U.S. wheat ending stocks, according to the June forecast, will also be lower. The new forecast is for 443 million bushels, down from the May prediction of 469 million.

 

Stronger exports are partly the reason for the decline in the ending stocks forecast, USDA said.

 

"Exports for the 2007-08 are projected 25 million bushels higher, reflecting stronger (than) expected demand for U.S. wheat as production shortfalls in key exporting countries lower world supplies," USDA said in the Monday report.

 

The USDA is now predicting 1 billion bushels of U.S. wheat exports for the 2007-08 marketing year. That's up from the May forecast of 975 million.

 

Strength in CBOT corn also helped wheat futures to advance, Cekander added. Commodity funds bought an estimated 5,000 contracts at CBOT.

 

  

Kansas City Board of Trade

 

The session high for KCBT July wheat was US$5.48 1/2, exceeding the previous contract high of US$5.27.

 

The USDA pegged hard red winter wheat production at 1.032 billion, up from its May estimate of 1.028 billion but below the average analysts' estimate of 1.056 billion. The range of analysts' pre-report guesses was 1.010 billion to 1.095 billion.

 

"There are a lot of rumblings about the Oklahoma crop having problems and if they're having problems in Oklahoma, they could be having problems in Kansas," Gidel said.

 

In the southern Plains, rain this weekend interfered with maturation and harvest of winter wheat, according to DTN Meterologix. Rain and thunderstorms will continue sporadically this week, further slowing maturation and harvest, the weather firm said. Temperatures are trending above normal.

  

 

Minneapolis Grain Exchange

 

The USDA estimated white winter wheat production at 219 million, below its May estimate of 241 million and the average analyst guess of 237 million. The new estimate was outside the range of analysts' guesses, which spanned from 226 million to 247 million.

 

The northern Plains were dry and warm this past weekend, but heavy storms are likely to return this week, according to Meteorlogix. Wheat throughout the Dakotas is at risk from the weather pattern, the firm reported.