July 3, 2007

 

US Wheat Review on Monday: Technical pressure weighs on prices

 

 

Follow-through technical selling dragged U.S. wheat futures sharply lower Monday, despite bullishness about export demand, traders said.

 

Chicago Board of Trade September wheat fell 13 3/4 cents to US$5.83 1/4, and CBOT December wheat settled 13 cents lower at US$5.97 1/2.

 

Kansas City Board of Trade September wheat closed 10 1/2 cents lower at US$5.84 1/2, and KCBT December wheat finished 19 3/4 cents lower at US$5.98 1/2. Minneapolis Grain Exchange September wheat tumbled 19 1/4 cents to US$6.05, and MGE December wheat ended down 22 cents at US$6.10.

 

Commodity funds sold an estimated 2,000 contracts at the CBOT. In pit trades, Fimat bought 1,500 September, Fortis bought 1,000 September and Bunge bought 600 September. Man Financial sold 600 September and spread 700 December/September.

 

Carryover technical selling from a weak close Friday pushed prices into negative territory and confirmed a bearish technical "key reversal," traders said. CBOT July wheat on Friday set a new contract high and fresh 11-year high for a front-month contract before tumbling sharply lower.

 

Wheat futures opened higher Monday, following a bounce overnight, before succumbing to the technical pressure. There was early support from news of export sales to Egypt, traders said.

 

Egypt's state-owned General Authority for Supply Commodities, or GASC, during the weekend bought 205,000 metric tonnes of U.S. and Russian wheat in a tender, on a free on board basis. GASC bought 100,000 tonnes of Russian and/or Kazakhstan wheat, at the seller's option, in a local tender in Egyptian pounds.

 

A news report, citing trade sources, also said Iraq had finalized several deals to buy 300,000 tonnes of U.S. hard wheat but was still negotiating shipment terms. Traders expressed caution about the news due to unstable conditions.

 

The Egypt sale, at least, provided another indication that there is solid demand for U.S. wheat at high prices, traders said. Although wheat slumped Monday, the markets will shoot higher if end users buy the break, an analyst said.

 

The U.S. Department of Agriculture reported export inspections for the week ended June 28 were 22.156 million bushels, exceeding pre-report estimates of 14 million to 19 million. For the current marketing year to date, 64.275 million bushels have been inspected for export, compared to 64.304 million at the same time last year, according to the USDA.

 

Global production problems also continue to support a long-term bullish outlook for wheat, an analyst said. European wheat fields have been getting too much rain, and it doesn't look like they will find relief anytime soon, Cropcast said in a forecast.

 

One- to five- and six- to 10-day forecasts predict Europe will continue to see too much rain for this time of year, Cropcast said. The 11-15 day forecast shows conditions may turn even wetter, which is unfavorable going into wheat harvest.

 

"Damage has certainly already been done in the form of crop quality declines from the excess water, but this may be minor compared to what could happen if the rain does not stop," Cropcast said.

 

 

Kansas City Board of Trade

 

More than two inches of rain fell from southern Kansas to northern Texas during the weekend, according to DTN Meteorlogix. The next several days feature additional rains and with below-normal temperatures, which extend harvest delays and expand damage to hard red winter wheat quality and production, the weather firm said.

 

Unfavorable rains in the Southern Plains during the last several weeks followed a severe cold snap Easter weekend.

 

"After a promising outlook following the winter dormancy season, a succession of weather calamities, begun by the hard freeze in early April, have taken a severe toll on this year's Plains wheat crop," Meteorlogix said.

 

Still, technical-led selling pressed on prices, with some contracts flirting with limit down levels, or a drop of 30 cents, traders said. The market had room for a setback after recent gains, they said. There was some early activity buying KCBT December wheat and selling CBOT December wheat, a KCBT floor trader said.

 

 

Minneapolis Grain Exchange

 

MGE March 2008 wheat traded limit down during the day session and ended 23 3/4 cents lower at US$6.19 1/4. Technical weakness led prices lower, and MGE was seen as a follower of Chicago and Kansas City, a floor trader said.

 

MGE futures should be "super sensitive" to development of the hard red spring crop amid weather damage to the HRW wheat crop, a trader said. High-quality spring wheat will have to be blended with lower-quality HRW wheat, damaged by unfavorable weather, analysts said.

 

The USDA is slated release its weekly crop progress report Monday at 4 p.m. EDT. It will update estimates on spring wheat condition, winter wheat condition and winter wheat harvest progress.