June 13, 2007

 

US Wheat Review on Tuesday: Technical buys, US HRW wheat woes boost prices

 

 

U.S. wheat futures sailed to new contract highs Tuesday on follow-through technical buying after a rally Monday and fears about damage to the hard red winter wheat crop, traders and market analysts said.

 

Chicago Board of Trade July wheat settled 9 cents higher at US$5.65 per bushel, Kansas City Board of Trade July wheat climbed 10 1/2 cents to US$5.59, and Minneapolis Grain Exchange July wheat closed up 6 cents at US$5.62.

 

CBOT July wheat set a new contract high of US$5.76 during the day session, exceeding the high of US$5.57 1/2 set Monday. The contract has solid technical momentum from Monday after taking out last fall's 10-year high for a front-month contract, analysts said.

 

"It was a technically-driven market," a CBOT floor broker said.

 

Shrinking 2007-08 global and U.S. ending stocks also remained supportive, analysts added. The U.S. Department of Agriculture on Monday cut its estimate for new-crop world wheat ending stocks to 112 million tonnes from 113.4 million, a 30-year low.

 

Fears about production threats from unusual heat and dryness in Ukraine and southern Russia also continue to provide prices with underlying strength, an analyst said. There are also worries about potential crop problems in China and Argentina.

 

China is experiencing hot, dry weather in the northern and central regions, depleting soil moisture, according to DTN Meteorlogix. Argentine wheat emergence is being affected by lack of moisture, but the next few days may see some light to moderate rain, the weather firm said.

 

"With all the problems overseas, I think wheat is playing catch up with the markets," the analyst said.

 

The U.S. is "the sole port of origin or the primary port of origin to buy high quality milling wheat," the analyst added. "Last year, we were like the third or fourth port of origin for milling wheat because our crop was so bad. Even with the higher prices, they're expecting demand to be good because where else do you go to buy wheat in the world?"

 

Commodity funds bought an estimated 5,000 contracts. In CBOT pit trades, Citigroup bought 400 July. UBS sold 700 September, while Rand Financial and Man Financial each sold 300 December. ADM spread 1,000 July/September, and Tenco spread 1,000 July/September. Man Financial spread 1,000 July/December.

  

 

Kansas City Board of Trade  

 

Fears about damage to the U.S. HRW wheat crop shoved KCBT wheat futures higher, traders said. There is talk about severe damage to wheat in western Kansas from recent high winds, an analyst adds. The crop in western Kansas had been expected to be strong after it appeared the area had escaped serious damage from a hard freeze Easter weekend.

 

Heavy rains in the U.S. southern Plains also continue to delay harvest and generate concerns about wheat losing test weight, KCBT floor traders said.

 

Texas had only harvested 17% of the crop as of June 10, compared to 42% last year and a 41% five-year average, according to the USDA's weekly crop progress report. Oklahoma had harvested 25%, down from 76% last year and a 45% five-year average. Kansas was also down to 1% harvested compared to last year's 13% and a five-year average of 5%.

 

Scattered showers, dropping up to one and a half inches, are expected through Thursday in the U.S. southern Plains, Meteorlogix said. Wet conditions will continue in the south-central and southeast areas Friday, but by Saturday, conditions will be drier, the weather firm said.

  

 

Minneapolis Grain Exchange

  

MGE wheat futures were seen as a follower to CBOT and KCBT, a floor trader said.

 

The USDA reported spring wheat in 81% good-to-excellent condition, a four percentage-point drop from the previous week. Excessive rains in the U.S. northern Plains have hurt the crop a bit, but the condition ratings are still up 14 percentage points from last year's crop, an analyst noted.

 

The northern Plains will likely see some heavy storms over the next few days, bringing some flooding to the wheat fields of Minnesota and the Dakotas, Meteorlogix said. Still, the spring wheat crop has strong potential for a solid production, said Neal Fisher, administrator of the North Dakota Wheat Commission.

 

"This is one of the best starts to the crop that we've had to spring wheat," Fisher said.