July 13, 2006

 

US Wheat Review on Wednesday: Markets fall on mixed USDA data

 

 

U.S. wheat futures fell Wednesday on mixed production and supply/demand data from the U.S. Department of Agriculture.

 

Basis September contracts, Chicago Board of Trade wheat fell 2 cents to US$4.14 1/2, Kansas City Board of Trade ended 7 3/4 cents lower at US$5.17 1/4 and the Minneapolis Grain Exchange contract fell 7 1/2 cents to US$5.24 a bushel.

 

The USDA, in its July crop production and supply/demand tables, lowered the "other spring wheat" crop estimate more than expected to 465 million bushels, down from 504 million last year, as drought spreads to the northern Plains and affects the hard red spring crop during its critical heading stage. It was the first projection of the new 2006-07 crop. The news from the outset was expected to be bullish, but MGE traders, after a blip on the opening bell into higher ground, sold the market.

 

The Kansas City and Chicago wheat markets took their cue and also sold, once it was determined that MGE prices were headed down. Speculative and fund-led selling pressured prices at all three exchanges, a trader said.

 

Another trader attributed the losses to a typical "buy the rumor, sell the fact" scenario, since there had been much speculation about what number the government would use as its starting point for the crop. Unless the drought breaks soon, crop conditions and production potential will continue to wilt, a trader said.

 

The USDA, in its first estimate of the durum crop, projected it at 60 million bushels, down from pre-report estimates of 72 million bushels.

 

The government adjusted the winter wheat crop higher, however, which was slightly negative for the market. As a result, 2006-07 U.S. ending stocks rose to 438 million bushels, from 416 million in June. The hard red crop was raised to 660 million bushels, and the soft red crop was adjusted 5% higher from the June report to 375 million bushels.

 

Globally, higher production estimates in China, Ukraine and the Former Soviet Union led to higher-than-expected world ending stocks at 133.2 million metric tonnes, versus 128.2 million in June, which was bearish for prices.

 

Australian production was lowered, however, by 2.5 million tonnes to 21.5 million, as adverse weather affects that crop.

 

In other news, France's state grains board National Service interprofessional des Grandes Culture, or ONIGC, estimated the country's 2006-07 soft wheat output at 35.9 million tonnes, versus 35.923 million for the 2005-06 crop.

 

It pegged E.U. 2006-07 soft wheat output at 118.2 million tonnes, up 2.8% versus the previous year.

 

At the CBOT, Calyon Financial sold 1,000 Sep, Tenco and Citigroup Global Markets each sold 500 September, ADM sold 500 July 2007 contracts, Bunge sold 400 September, Fimat sold 500 December, and Rand Financial sold 300 September.

 

Fimat propped up the buy side, however, with a purchase of a net 1,500 September contracts, while J.P. Morgan bought a net 600 September and Kottke bought 200 September.

 

Funds had sold a net 3,000 wheat contracts by 1:30 p.m. EDT.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat futures fell on a "buy the rumor, sell the fact" scenario after the USDA released its crop production and supply/demand tables and on higher winter wheat crop estimates.

 

The USDA raised winter wheat production more than expected, pegging the crop at 1.280 billion bushels, versus 1.264 billion in June and higher than most estimates looking for 1.251 billion.

 

Production increases in both the hard red and soft red crops boosted the overall winter wheat number and pressured the markets, said Jack Scoville, vice president of Price Futures Group. "Even though the spring wheat and the durum numbers came in lower than expected, I think the fact that winter wheat in this report didn't drop more was the death knell here," he said.

 

Still, the wheat numbers were not outside the realm of market expectations, a KCBT trader said.

 

In early trade, UBS bought a net 200 September and sold 500 July 2007, Fimat sold 700 September, while ADM and Man Financial were on both sides of the market.

 

J.P. Morgan was featured on the September/December spread at 300 contracts at 12 cents.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE September wheat, after reaching a new contract high of US$5.35 early, was met quickly with selling that pressured the market for the rest of the session.

 

News of the lower HRS crop estimate was initially though to be bullish, but traders shrugged off the data, apparently as traders sold the fact and put more stock into the higher U.S. and world ending stocks, a source said.

 

Nevertheless, the decline in hard red production puts the market in jeopardy of running out of hard red stocks, "so we'll need to rally to ration demand," said Brian Hoops, president of Midwest Market Solutions in Yanktonne, S.D.

 

The lower trade did, however, close a technical gap on the charts left from Tuesday's higher opening.