July 14, 2006

 

US Wheat Review on Thursday: Sells off on technical weakness, stops

 

 

U.S. wheat futures fell to two- and three-week lows on technically related sales that pushed prices into sell stops and exacerbated the losses, sources said Thursday.

 

Basis September contracts, Chicago Board of Trade wheat lost 19 cents to US$3.95 1/2 - a two-week low. Kansas City Board of Trade led the losses, falling 23 3/4 cents to US$4.93 1/2 - nearly a three-week low. Minneapolis Grain Exchange wheat lost 17 3/4 cents to US$5.06 1/4 a bushel - a two-week low.

 

Traders, with no bullish fundamental news to support the market, took advantage of the recent higher prices and booked profits. The technical selling fed on itself and eventually pushed the markets into stops, traders and analysts said.

 

"I'm sure the longs looked at it and said, 'There's not a lot of upside potential in the short term, so I'm just going to take my money out of it and get back in if we continue to break lower,'" said Shawn McCambridge, senior grains analyst at Prudential Financial in Chicago.

 

The Kansas City and Chicago markets will begin to focus on demand with the winter wheat harvest winding down, and much of the news on that front only encouraged the bears to sell.

 

The U.S. Department of Agriculture reported a net 201,200 metric tonnes of wheat were sold in the week to July 6, down 33% from the previous week and 50% below the previous four-week average. Shipments totaled 295,100 tonnes, which were down 23% from the previous week.

 

In other export news, Japan bought 80,000 tonnes of wheat for Sept. 1-30 shipment. Of the total, 60,000 tonnes were from the U.S. and 20,000 tonnes from Canada.

 

The hard red spring crop, meanwhile, despite the losses, continues to focus on production and the losses associated with intensifying drought. Scattered showers and thunderstorms moved across portions of the Dakotas overnight and into Thursday, providing limited relief for some hard-hit drought areas.

 

Northern Plains' weather will turn back to mostly dry by Friday and Saturday and temperatures will rise to 100 degrees Fahrenheit. A few showers are possible in eastern areas on Sunday, but readings will average above normal with highs from the upper 80s to upper 90s, DTN Meteorlogix said.

 

Michael Schlacter, chief meteorologist at private firm Weather 2000 in New York, said North and South Dakota, Nebraska, Iowa, Minnesota and Wisconsin are seeing some of the most intense drought in the U.S.

 

"Unfortunately I don't see really good news on the horizon" for those areas, he said.

 

The drought has spread rapidly in the last four to six weeks from south to north and is now crawling into Canadian Prairie provinces of Manitoba and Saskatchewan, and western Ontario and eastern Alberta to a lesser extent, Schlacter said.

 

As drought intensifies in the northern Plains, the storms that do appear are isolated, he explained, which provide relief to a small area, or they produce rains that evaporate before reaching the ground.

 

Funds at the CBOT were on both sides of the market. Iowa Grain led the buyers with 2,500 September contracts, Rand Financial bought 400 September and O'Connor bought 200 December. J.P. Morgan sold 800 September and 200 July 2007, FCStonnee sold 400 December, Man Financial sold 300 September and 200 December and ABN Amro sold 200 December and 100 September.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat futures led the losses among the three markets, also on technically linked selling that pushed prices into pre-set sell orders.

 

Traders cited the shifting focus of the market to demand, from production, and the after-effects of the USDA raising the winter wheat crop to 1.28 billion bushels as pressuring prices.

 

Follow-through sales from Wednesday's weak close also were a bearish influence on the market.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE September wheat futures fell to two-week lows on technical selling inspired by prices reaching fresh contract highs early Wednesday, only to close lower, on a day when the U.S. Department of Agriculture estimated the spring wheat crop much lower than traders and analysts had anticipated at 465 million bushels, versus 504 million last year.

 

Follow-through sales from the weak technical momentum pressured the market into sell stops and prices fell, a broker said. Scattered but beneficial showers falling over areas of the Dakotas also influenced the lower trade, though the overall positive effect on the crops is limited.

 

"The rains fell in some ideal locations and it was certainly beneficial for those who got it but insufficient to reverse the overall drought situation," a floor broker said.