June 19, 2007

 

US Wheat Review on Monday: Slumps in pullback from last week's gains

 

 

U.S. wheat futures slid lower Monday in a modest consolidation after climbing to historic highs last week, analysts said.

 

Chicago Board of Trade July wheat ended 5 1/2 cents lower at US$6.01 per bushel. Kansas City Board of Trade July wheat closed 4 1/2 cents lower at US$5.91 3/4, and Minneapolis Grain Exchange finished 2 1/4 cents lower at US$5.84.

 

CBOT July wheat last week rose 79 cents on the week and hit fresh 11-year highs for a front-month contract amid concerns about shrinking global supplies. The market was technically overbought and due to pull back, a CBOT floor broker said.

 

Funds sold an estimated 2,000 contracts at CBOT on Monday. In CBOT pit trades, Shaktin-Arbor spread 1,000 December/July.

 

Still, the fundamentals for wheat remain "very, very strong," said Phil Storer, director of commodity trading at Dillon Gage. Global 2007-08 wheat carryout is pegged at its lowest level in 30 years, while Ukraine and southern Russia are suffering from a severe drought that is impacting production.

 

"You're down a day, and that's not the way market's quit," Storer said. "It'll turn around again."

 

Ukraine's eastern areas had highs in the low to mid 90s Fahrenheit on Saturday and Sunday, along with very light showers, according to DTN Meteorlogix. A few showers and some cooler temperatures are in store for this week, but the generally dry pattern continues, the weather firm said.

 

In Australia, meanwhile, scattered showers occurred in northern Queensland during the weekend, but the rains were north of the main eastern wheat areas, Meteorlogix said. The West Australia wheat belt remains in need of moisture but was dry during the weekend and will be dry this week, the firm said.

 

Looking farther ahead, nearly all of Western Australia's wheat crop area should pick up about 0.5 inch to 2 inches of rainfall in the next two weeks or so, which would be "extremely beneficial with planting on the horizon," Cropcast said in a forecast. Western Australia produces nearly 40% of the country's wheat crop, the firm reported.

 

The eastern half of Australia has fared better recently in regards to rainfall and should also see its share of rains in the coming weeks, especially in the 6-10 day period, Cropcast said. That should limit any dryness concerns there.

 

In other news, Morocco issued a long-awaited tender for wheat late Monday for 250,000 tonnes of soft wheat from both the European Union and U.S. The tender is scheduled to be finalized in mid-July with delivery spread out until mid-October. Much of the demand was expected, traders said.

 

Looking at the Commodity Futures Trading Commission's weekly Commitment of Traders supplemental report, non-commercial speculative funds increased long CBOT wheat futures and options positions by 5,896 lots and cut shorts by 4,026 lots as of June 12. The funds were net long 13,123 contracts, the CFTC said.

  

 

Kansas City Board of Trade  

 

There was some pressure on prices from expectations that the U.S. Southern Plains will dry out and allow harvest to progress, a KCBT floor trader said. The next one to two weeks should offer improved chances for cutting after weeks of damage and delays from heavy rains, analysts said.

 

A few showers will develop in the central Plains, but the hardest-hit part of Kansas for harvest delays - the south and southwest - have drier conditions on tap for much of this week, according to Meteorlogix. The next 10 days feature more warm and dry weather, which will be beneficial for ripening of wheat along with harvest progress, the weather firm said.

 

Even if the weather does dry out, however, it will still be difficult for producers to find customer combiners to cut their wheat, Storer said. Many of the contracted combiners have already moved out of rainy areas due to the harvest delays, he said.

 

"I don't care if it dries out or not here," said Storer, who is based in Texas. "They're not coming back down here."

 

Harvest of the winter wheat crop is expected to remain below average in the U.S. Department of Agriculture's weekly crop progress report, due out at 4 p.m. EDT (2000 GMT) Monday. Rains in the Plains last week prevented many growers from getting into their fields, analysts said. As of June 10, harvest was 5% complete.

 

Good-to-excellent condition ratings for U.S. winter wheat are expected to drop 2 to 3 percentage points in the crop progress report, analysts said. As of June 10, the USDA rated 52% of winter wheat in good-to-excellent condition.

 

Non-commercial speculative funds increased long KCBT wheat futures and options positions by 5,609 lots, trimmed shorts by 5,219 lots and were net long 21,414 contracts, the CFTC said in a supplemental report.

  

 

Minneapolis Grain Exchange  

  

Good-to-excellent spring wheat ratings are expected to stay flat or increase up to 2 percentage points in the crop progress report. As of June 10, the USDA rated 81% of spring wheat in good-to-excellent condition.

 

In other news, the USDA said weekly wheat export inspections for the week ended June 14 were 16.390 million bushels, above analyst estimates of 8 million to 15 million bushels. For the current marketing year, which began June 1, 25.485 million bushels have been inspected for export to date, compared to 30.476 million at the same time last year, according to the USDA.

 

Looking at the CFTC report, non-commercial speculative funds decreased longs by 911 lots, shorts by 87 lots and were net long 14,231 contracts.