June 20, 2007

 

US Wheat Review on Tuesday: Tumbles on CBOT corn, dry harvest weather

 

 

Limit-down moves in the neighboring corn market and pressure from improved harvest weather dragged U.S. wheat futures to a sharply lower close Tuesday, market analysts and traders said.

 

Chicago Board of Trade July wheat tumbled 20 cents to US$5.81 per bushel, Kansas City Board of Trade July wheat settled 22 1/2 cents lower at US$5.69 1/4, and Minneapolis Grain Exchange July wheat ended down 13 3/4 cents at US$5.70 1/4.

 

CBOT corn finished limit-down, or 20 cents lower, in multiple contracts and put spillover pressure on wheat, floor traders said. CBOT soybeans also closed with steep losses, adding to the negative tone.

 

Commodity funds were heavy sellers in all three markets and unloaded an estimated 6,000 wheat contracts. In CBOT pit trades, Man Financial sold 1,000 December and Tenco sold 800 September.

 

Wheat futures also continued to consolidate after breaking 11-year highs for front-month contracts last week, traders said. The market was in an overbought condition and due for some profit-taking, they said.

 

In other news, the Australian Bureau of Agricultural & Resource Economics, or Abare, pegged Australia's new wheat crop at 22.5 million tonnes, down from its March estimate of 25 million but in line with the U.S. Department of Agriculture's June estimate of 22.1 million. The estimate was considered a bit bearish by some market participants who had expected to see a lower estimate, said Jerry Gidel, analyst at North America Risk Management Services.

 

The dry Western Australia region will have a few showers in the next week, but rainfall will be light, according to DTN Meteorlogix. The moisture will not be enough to reverse a long-term drying trend, the weather firm reported.

 

Elsewhere, Ukraine, which has been suffering from a drought, had a few showers with rainfall of up to one-half inch in dry eastern portions of the country, Meteorlogix said. Scattered showers will develop in the eastern areas again Tuesday, along with in south Russia, the firm forecast.

 

The precipitation may bring some relief to parched wheat fields, but there is still underlying support from crop loss that has already occurred because of the drought, a CBOT floor broker said. The drought has caused the loss of about 10 million tonnes of grain in Ukraine.

 

"The showers will hold off further crop damage from this year's drought, but will not add appreciable yield potential to summer crops," Meteorlogix said.

 

There is also long-term underlying support from tightness in 2007-08 global wheat carryout, an analyst said. The USDA this month pegged world ending stocks at their lowest level in 30 years.

  

 

Kansas City Board of Trade

  

Forecasts for drier weather in the U.S. Southern Plains continued to weigh on wheat futures amid expectation for progress in the hard red winter wheat harvest, Gidel said. Seasonal harvest pressure typically pulls down prices as new supplies come on line.

 

A few scattered rain showers occurred Monday in eastern sections of the Southern Plains, including southern Kansas through northern Oklahoma, according to Meteorlogix. However, only scattered rain showers will develop in the region Wednesday, bringing totals of less than 0.5 inch, the weather firm said.

 

During the rest of the week and into next week, the Southern Plains will be generally dry with above normal temperatures, Meteorlogix said.

 

"They're going to have a lot of harvesting potential," Gidel said about producers in Oklahoma and Kansas. "That does put us in the scenario of trying to figure out what kind of yields we're going to see. Even if the yields aren't going to be as impressive, we're still going to have supplies around."

 

Still, losses will be tempered if the advancing harvest produces modest results, Gidel said.

 

The U.S. Department of Agriculture said in its weekly crop progress report that 11% of the U.S. winter wheat crop was harvested as of June 17, compared to 34% last year and a five-year average of 20%. Kansas, the nation's top wheat-producing state, had harvested 2% of its crop, up from 1% last week and the five-year average of 19%.

 

Oklahoma had harvested 41% of its wheat, up from 25% last week but below the five-year average of 66%. Texas had harvested 31%, up from 17% last week but below the five-year average of 57%, according to the USDA.

  

 

Minneapolis Grain Exchange  

  

MGE was seen to be a follower of declines at the CBOT and KCBT, a floor trader said. In the weekly crop progress report, the USDA rated 85% of the U.S. spring wheat crop in good-to-excellent condition, up from 81% the previous week.

 

A favorable weather pattern is on tap for spring wheat in the U.S. Northern Plains, Meteorlogix said. Sunny spells and warm weather between shower threats favor the crop, the weather firm said.