June 15, 2007

 

US Wheat Review on Thursday: CBOT July wheat ends above US$6 per bushel

 

 

U.S. wheat futures Thursday rallied to fresh 11-year highs for front-month contracts on bullish momentum and crop loss concerns, with several contracts closing at or above US$6 per bushel traders and analysts said.

 

Chicago Board of Trade July wheat ended up 17 cents at US$6.06 1/2, Kansas City Board of Trade July wheat ended up 11 1/2 cents at US$6, and Minneapolis Grain Exchange July wheat ended up 7 cents at US$5.88.

 

During the day session, CBOT July wheat set a new contract high of US$6.18 1/2, exceeding the previous high of US$5.95 set Wednesday. The contract is trading at the highest level of a front-month contract since 1996.

 

Wheat opened the day session strong and pushed above US$6 but quickly pulled back, a "red flag" for bulls that the markets are due for a correction after recent price strength, an analyst said. Prices rebounded with support from fears about tight global stocks and production shortfalls in key U.S. hard red winter wheat states, including Oklahoma and Kansas, said Louise Gartner, analyst with Spectrum Commodities.

 

The market, however, is in a technically overbought condition after a series of rallies this week and due for a correction, analysts said. Profit-taking pulled prices down a bit from their highs, traders said.

 

Still, there remains strong underlying fundamental support for wheat, Gartner said.

 

The U.S. Department of Agriculture this week pegged 2007-08 global ending stocks at their lowest level in 30 years. The supply tightness comes as a severe drought is ravaging southern Russia and Ukraine, a normally aggressive exporter on the world wheat market.

 

The drought is likely to cost Ukraine 10 million metric tonnes of grain in the 2007 harvest, out of the total harvest of 38 million tonnes forecast earlier by the agriculture ministry, the country's prime minister said Thursday. Officials have indicated they plan to suspend exports until state grain reserves can be established to meet domestic needs.

 

Advances in European wheat futures added to the positive tone for U.S. wheat, analysts said. Euronext.liffe wheat futures finished significantly higher Thursday on a tight global supply outlook and further speculative buying. Paris-based milling wheat set a fresh record high for the fourth session in a row and London-based feed wheat a 3 1/2-year high in the second-month chart.

 

Wheat was seen to be "feeding off itself" after its recent rallies, a CBOT floor trader said. There is little technical resistance at the historically high price levels, he added.

 

Commodity funds bought an estimated 5,000 contracts at CBOT. In pit trades, Man Financial bought 800 Dec and sold 400 July. There was some September/December bull spreading, a trader said.

  

 

Kansas City Board of Trade

   

KCBT July wheat set a fresh 11-year high and a new contract high of US$6.15, exceeding Wednesday's contract high of US$5.89. Damage to U.S. HRW wheat, which is traded at the KCBT, is a key bullish factor in wheat's strength, analysts said.

 

Excessive wetness has flooded fields in the Southern Plains, delaying harvest in Oklahoma and lowering test weights, industry members said. Kansas, meanwhile, is getting "deluged with rain," and disease problems are "rampant," Gartner added.

 

The conditions have moved passed creating fears about plant damage and crop loss is now a reality, she said.

 

"We're only going to see those stocks get tighter," Gartner said.

 

Looking forward, wheat needs to take a breather and is due for a correction, Gartner said. However, the markets won't "fall apart" until harvest begins in Kansas and information comes out about yields there, she said.

  

 

Minneapolis Grain Exchange

  

MGE July wheat set a new contract high of US$5.94 1/2, exceeding the previous high of US$5.85 set Wednesday.

 

Weekly export sales also were friendly considering the high prices, a MGE floor trader said. The USDA reported wheat sales for the week ended June 7 totaled 413,100 metric tonnes, above trade estimates 150,000 to 350,000 tonnes. Sales increases were reported for Nigeria, which bought 122,000 tonnes, and Indonesia, which bought 61,800 tonnes, according to the USDA. Unknown destinations bought 62,000 tonnes.

 

News that Japan only bought 65,000 tonnes, including 25,000 tonnes from the U.S., in a routine tender concluded Thursday showed prices may be getting to high, an analyst added.