US Wheat Review on Thursday: Jumps on spread unwinding, technical buys

 

 

Technical buying and the unwinding of wheat/corn spreads launched U.S. wheat futures higher Thursday ahead of the long Independence Day weekend, traders said.

 

Chicago Board of Trade September wheat jumped 7 1/4 cents to US$8.87 1/2 a bushel. Kansas City Board of Trade September wheat climbed 7 1/2 cents to US$9.12 1/4, and Minneapolis Grain Exchange September wheat rose 2 1/2 cents to US$9.38.

 

It was the third consecutive day of gains for CBOT wheat. Market participants have been long corn and short wheat for awhile, and were seen to be liquidating those positions, traders said.

 

The spread between CBOT September wheat and September corn closed at US$1.29 3/4. CBOT September corn slipped 3 1/4 cents to US$7.57 3/4 in a modest setback from strong gains Wednesday.

 

Interest in selling corn and buying wheat grows if the spread gets inside of US$1.30, said Brian Henry, broker for Archer Financial Services. A CBOT floor analyst, meanwhile, said a wheat/corn ratio of 1.2 to 1 has "historically been a good time to buy wheat and sell corn."

 

"It's probably safe to believe some of the current wheat shorts are against long corn positions, and more liquidation of this spread is likely to take place," Henry said.

 

Next week, wheat will likely resume its role as a follower of the row crops, particularly corn, said Bill Nelson, analyst for Wachovia Securities. Corn and wheat are linked as both are used for animal feed.

 

There is the potential for corn and soybeans to move sharply higher or lower after the July 4 holiday depending on the weather, Nelson said. There are concerns about corn's shallow root systems after late planting and damage from recent Midwest floods.

 

Separate from corn and soy, the outlook for wheat is "a bit bearish," Nelson said. U.S. and world ending stocks are expected to grow in 2008-09 following expanded plantings and mostly favorable weather.

 

"To me, what's holding up wheat is the corn and the beans," Nelson said.

 

 

Kansas City Board of Trade

 

Unwinding of KCBT wheat and CBOT corn spreads boosted KCBT wheat futures, a floor trader said. Strength in crude oil also was seen as supportive.

 

The wheat harvest across central Kansas is "going strong," and some areas will finish cutting Wednesday, according to a report from Kansas Wheat, the producers' group. The U.S. Department of Agriculture is slated to issue an update on harvest progress Monday in its weekly crop progress report.

 

In other news, U.S. weekly wheat export sales of 668,100 tonnes were seen as solid, a trader said. Sales were above trade estimates, which ranged from 200,000 to 600,000 tonnes, and up 34% from the previous week.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures reluctantly followed CBOT wheat higher. The market was in negative territory for much of the day session before firming up late.

 

MGE wheat didn't get a boost from spread unwinding, as CBOT corn is spread more against CBOT wheat and then KCBT wheat, a MGE floor trader said. The spring wheat crop in the northern Plains is mostly in good-to-excellent condition.