July 12, 2006

 

US Wheat Review on Tuesday: Shoots to fresh highs; crop ratings tumble

 

 

U.S. wheat futures shot to new monthly and contract highs Tuesday on a combination of strong technicals and on fresh evidence that drought is withering the hard red spring crop, sources say.

 

Basis September contracts, Chicago Board of Trade wheat gained 13 1/2 cents to US$4.16 1/2, Kansas City Board of Trade rose 13 3/4 cents to US$5.25 and the Minneapolis Grain Exchange gained 10 3/4 cents to US$5.31 1/2 a bushel.

 

Blistering hot conditions are expected to return to the northern Plains by the end of this week, with high temperatures reaching 100 Fahrenheit or more. The heat combined with a lack of significant rain is stressing the wheat crop and taking yields down with it.

 

"As you move north, the oppressive heat is just sucking the life out of the crop," said Jerry Gidel, analyst at North American Risk Management Services in Chicago.

 

The U.S. Department of Agriculture reported Monday afternoon that HRS conditions fell another 10 percentage points, putting 27% of the crop in the poor-to-very-poor category. No. 1 producer North Dakota has 29% of its crop in poor or very poor shape.

 

This drought comes at a critical time for development, with nearly 90% of the HRS crop forming heads, which determines yields. The drought conditions also are advancing crop maturity, thus compounding the problem because the plants do not develop properly, sources said.

 

Problems with the HRS crop come at a particularly bad time for the market, after drought in the southern Plains slashed the hard red winter crop to an estimated 659 million bushels, versus 930 million last year. Therefore, mills are concerned about having adequate supplies of quality hard wheat in which to make bread.

 

On the soft red wheat situation, the harvest is progressing smoothly. Illinois is 95% complete, Indiana is at 70% and Ohio is 20% harvested, the USDA said.

 

On Wednesday, the USDA will issue its July crop production and supply/demand tables. Traders will be anxious to see the first HRS and durum production estimates of the 2006-07 season.

 

Traders and analysts in a Dow Jones Newswires survey pegged the other spring wheat crop at an average 496 million bushels, down from last year's production of 504 million bushels. Informa Economics last week, however, estimated the crop at a low 475 million bushels.

 

The U.S. winter wheat crop is pegged at 1.251 billion bushels, down from 1.264 billion in June. Durum wheat production is seen at 72 million bushels, versus 101 million last year, the survey said.

 

At the CBOT, Man Financial bought 500 September, O'Connor bought 300 December, Iowa Grain bought 300 September, ABN Amro and Rand Financial each bought 200 September and J.P. Morgan bought 100 September and 100 December. Caylon Financial was a featured seller of 1,000 September.

 

Funds bought a net 1,000 contracts as of 1:30 p.m. EDT.

 

CBOT September wheat traded to a US$4.17 high, its strongest price in nearly five weeks, and settled nearby at US$4.16 1/2 a bushel.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat rallied in tandem with the gains in Minneapolis and Chicago and also on technical strength from the gap-higher opening and subsequent trade to six-week highs.

 

The U.S. winter wheat crop is 72% harvested as of July 9, up from 65% the previous week and ahead of the 66% five-year average, the USDA said.

 

KCBT September hit a high of US$5.27 1/2 and just shy of the US$5.28 contract high made on May 23.

 

Speculative fund buying was heavy, a trader said. In early trade, J.P. Morgan bought 200 December, Country Hedging bought 100 September and 100 December and Frontier Futures bought 100 September and 100 July 2007. Fimat sold a net 300 September and 100 December, while ADM sold a net 200 September.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE September futures jumped to a new contract high of US$5.32 and also the highest price on a continuation basis in 10 years on the drought worries and worse-than-anticipated crop conditions.

 

The contract settled near its high at US$5.31 1/2 a bushel.

 

"We had a big drop in the crop ratings and we need to ration the hard wheat stocks," said Brian Hoops of Midwest Market Solutions in Yanktonne, S.D, explaining the rally.

 

Technical strength also supported the market with Monday's close above US$5.16 resistance on September attracting follow-through buying, Hoops said, though most of the gains were because of the adverse weather.