July 11, 2006

 

US Wheat Review on Monday: Drought concerns lift prices

 

 

U.S. wheat futures rose Monday, led by gains in the Minneapolis hard red spring market, on concerns that drought in the northern Plains will intensify and continue to worsen crop conditions.

 

Chicago and Kansas City markets also were higher, but mainly found sympathy buying from the gains in Minneapolis. A rally in corn and higher soybean prices provided spillover support, a trader said.

 

Basis September contracts, Minneapolis Grain Exchange settled 10 3/4 cents higher at US$5.20 3/4, Chicago Board of Trade was up 4 3/4 cents at US$4.03 and Kansas City Board of Trade added 4 1/2 cents to US$5.11 1/4 a bushel.

 

"Hard red spring conditions were off last week and I wouldn't be surprised to see them down another 5%," said independent agricultural analyst John Kleist.

 

While some areas of the northern Plains received scattered rains over the weekend, conditions are expected to return to hot and dry this week with high temperatures near 100 Fahrenheit, which will further stress the crop.

 

"Obviously, they need a million-dollar rain up there and that's all that's going to help. It's kind of a serious situation," Kleist said. Forecasts for continued adverse weather are keeping the market in a "supply-bull" framework, he added.

 

As a result of the supply concerns, cash prices for HRS and winter wheat have surged to 10-year highs.

 

Chicago wheat found good support on fund buying and a lack of selling.

 

J.P. Morgan bought 300 December and 200 September, Rand Financial and Man Financial each bought 300 September, and ABN Amro and UBS each bought 200 September. The only sale listed was Tenco shedding 100 September contracts.

 

Funds as of 1:30 p.m. EDT had purchased a net 2,000 wheat contracts.

 

In news, wheat inspected for export in the week to July 6 totaled 8.327 million bushels, down from 14.362 million the previous week and 13.392 million one year ago, the U.S. Department of Agriculture reported.

 

High wheat prices due to the supply concerns are effectively rationing demand, a trader said. Still, wheat futures remained higher despite weakening demand.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat rose along with the gains in hard red spring wheat and on the forecasts for crop-stressing weather to continue. The overbought condition of the market, however, kept the gains in check.

 

Most-active September had a quiet "inside day" on the technical charts.

 

In early trade, Man Financial bought 100 December and sold 200 September, FCStonnee bought 100 December and sold 100 September, Frontier Futures bought 100 September and 100 December, while Fimat sold 150 September and 100 December.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE wheat led the gains among the three markets. Traders and analysts expect further deterioration in the HRS crop, as drought moves north on the Great Plains and into the No. 1 producing state of North Dakota.

 

Drought now affects major portions of the Dakotas, Nebraska, Wyoming and Iowa and is expected to continue and expand through September to include all of those states, in addition to eastern Montana and most of Minnesota, the U.S. Climate Prediction Center said in a special report on the situation.

 

September came within a penny of the US$5.24 contract high, and settled at US$5.20 3/4 a bushel, up 10 3/4 cents.