July 8, 2006

 

US Wheat Review on Friday: Down on overbought, stagnant conditions

 

 

U.S. wheat futures fell on speculative selling amid overbought conditions, a lack of fresh fundamental news and a larger-than-expected winter wheat estimate, traders and analysts said Friday.

 

Basis September contracts, Chicago Board of Trade fell 9 cents to US$3.98 1/4, Kansas City Board of Trade gave up 11 3/4 cents to US$5.06 3/4 and the Minneapolis Grain Exchange fell 4 1/2 cents to US$5.10.

 

"We kind of stagnated here this week after continuing to recover early in the week, and then we just kind of went range-bound," said Shawn McCambridge, senior grains analyst at Prudential Financial in Chicago.

 

That price activity was a sign the markets needed fresh input to continue rallying, which didn't happen.

 

In addition, widespread speculative and fund sales took most commodity markets, except cocoa, lower Friday, and those bearish trades also were evident in the wheat markets.

 

A larger-than-expected winter wheat estimate from Informa Economics pressured the Chicago and Kansas City markets, as the private firm reportedly pegged the U.S. crop at 1.287 million bushels, compared to the U.S. Department of Agriculture's 1.264-billion June projection.

 

Some weather forecasts calling for scattered rains over parts of the northern Plains this weekend also were cited as pressuring the market.

 

The winter wheat markets are beginning to shift their focus to demand, from production, now that the Kansas hard red harvest is essentially over and the soft red harvest is progressing in the Midwest, McCambridge explained.

 

Weekly export sales were pegged at a net 298,800 metric tonnes, down 45% from the previous week, the U.S. Department of Agriculture reported. Shipments of 382,100 tonnes were 3% above the previous week but down 12% from the prior four-week average.

 

CBOT funds had sold a net 500 wheat contracts as of 1:30 p.m. EDT.

 

Fimat sold 500 September, Man Financial sold a net 200 September and 200 March, Merrill Lynch sold 300 September and J.P. Morgan sold 400 July 2007 contracts.

 

Calyon Financial bought 500 September, J.P. Morgan bought 400 September, while Man Financial and Fimat each bought 200 December.

 

ADM spread 1,000 July 2007/September contracts.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT prices led the losses on forecasts for scattered rains in the northern Plains and on Informa's higher-than-expected winter wheat estimate.

 

Most-active September fell to a US$5.05 1/2 one-week low and settled just above that level at US$5.06 3/4 a bushel. A lower open left a small gap on the chart from US$5.15 1/2 to US$5.15, which traders may try to fill in the near term.

 

ADM was an early seller of 800 September, Frontier Futures sold 400 September, FC Stonnee sold 300 September, while J.P. Morgan and UBS each bought 200 September.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE wheat prices closed lower, but the weakness was tempered by forecasts for hot, dry weather, interspersed with chances for scattered showers, to put additional stress on the hard red spring crop.

 

While winter wheat traders are shifting to a demand-oriented focus, spring wheat traders remain fixated on production. Drought conditions have now spread into top-producer North Dakota as the crop is in its critical heading development stage in which yields are set.

 

Informa reportedly estimated the hard red spring crop at 475 million bushels, versus average trade estimates of 496 million bushels. While McCambridge said he can't disagree with Informa's projection, he thinks it's too soon to take production that low. Based on current conditions, he estimates the crop at 509 million bushels, with the potential for a decrease if the drought continues to spread.