June 21, 2007

 

US Wheat Review on Wednesday: CBOT hits limit up on funds, crop fears

 

 

U.S. wheat futures rallied to limit up in some contracts Wednesday on fund buying and bullish talk about yield losses from unfavorable weather, traders said.

 

Chicago Board of Trade July wheat closed up 24 cents at US$6.05 per bushel after climbing 30 cents to the daily price ceiling earlier in the day session. Kansas City Board of Trade July wheat ended 17 1/4 cents higher at US$5.86 1/2, and Minneapolis Grain Exchange July wheat rose 20 1/4 cents at US$5.90 1/2.

 

Commodity funds bought an estimated 6,000 contracts at CBOT. There also was some short-covering after sharp losses Tuesday, traders said.

 

Unusually warm and dry weather in the eastern Midwest has sped up soft red winter wheat maturation and shortened a key period of development known as grain fill, crop specialists said. Shorter grain fill periods often result in smaller kernels and lower yields. SRW wheat is used to make cakes, pastries and snack foods.

 

There also are concerns about disappointing hard red winter wheat yields in Oklahoma and Kansas, a CBOT floor trader said. HRW wheat is used to make bread.

 

But fears about poor harvest results in general seem to be exaggerated, said Chad Henderson, analyst with Prime Agricultural Consultants in Brookfield, Wisc. A producer near Effingham, Ill., for example, reported harvesting 70 bushels an acre, he said.

 

"It seems like right now the game is who can find the poorest wheat," Henderson said. "People want to cheer a bullish market."

 

Looking at global growing areas, the West Australia wheat region had a few light showers Tuesday, but otherwise dry weather prevailed, DTN Meteorlogix said. The next chance for showers in the region will hold off until the weekend with light precipitation.

 

Otherwise, generally dry weather will continue, the weather firm said. The below-normal rainfall pattern remains a problem for that sector of the continent, Meteorlogix said.

 

In Ukraine, which is suffering from a severe drought, a few light showers fell Tuesday in eastern Ukraine and the northern Caucasus area of Russia, Meteorlogix said. Temperatures ranged into the low 90s Fahrenheit.

 

A drier-than-normal pattern continues for the region. There will be a few light showers, but they will have below-normal precipitation, Meteorlogix said.

  

 

Kansas City Board of Trade

  

Stronger-than-expected thunderstorms hit major HRW wheat producing states overnight Tuesday, renewing concerns about harvest delays and crop damage from excessive wetness, traders said. Kansas, Oklahoma and Texas received up to 1.5 inches, according to Meteorlogix.

 

The next five days should bring improving harvest conditions to the Plains in the form of drier and warmer weather, Meteorlogix said. Harvest, though, will be slow to resume due to muddy and wet fields, the firm said.

 

"By and large, the winter wheat crop is made," said Bill Nelson, associate vice president of AG Edwards & Sons in St. Louis. "Certainly the storms can cause problems and cause some losses."

 

Still, Wednesday's gains seemed extreme, Nelson said.

 

The rally erased sharp losses the markets suffered Tuesday. Prices tanked on spillover pressure from corn and expectations that drier weather in the Plains would allow producers to make significant harvest progress after rain delays.

 

"It's a bull market," Nelson said about wheat. "A little whiff of something to latch on to and away we go."

  

 

Minneapolis Grain Exchange  

 

MGE wheat futures bounced back from Tuesday's losses and followed CBOT wheat to the upside, a floor trader said. Spring wheat is in "excellent" condition, but the market is ignoring that, he said.

 

"It feels like we're overpriced," the trader said.

 

Nelson agreed the market seemed to be shrugging off the condition of spring wheat. The U.S. Department of Agriculture rated 85% of the crop in good-to-excellent condition as of Sunday. Eleven percent of the crop was headed, slightly above the five-year average of 10%.

 

"I don't think the market's given much credibility to the fact that the spring wheat condition rating is historically high," Nelson said.