July 20, 2007

 

US Wheat Review on Thursday: Retreats after rallying on demand news

 

 

U.S. wheat futures ended mostly lower Thursday after bolting higher in early trading on strong demand news and fears about shrinking global stocks, analysts said.

 

Chicago Board of Trade September wheat closed 3 1/2 cents lower at US$6.20 per bushel, and CBOT December dropped 7 1/4 cents to US$6.35 1/4. Kansas City Board of Trade September wheat rose 3/4 cent to US$6.06 3/4, and KCBT December wheat finished 1 cent higher at US$6.21 1/2. Minneapolis Grain Exchange September wheat settled 5 1/2 cents lower at US$6.19 1/2, and MGE December wheat ended 5 3/4 cents lower at US$6.32 1/4.

 

Wheat retreated in a setback from advances Wednesday and as contracts hit some technical resistance, analysts said. CBOT December traded as high as US$6.51 1/2 during the day session, approaching the contract high of US$6.58.

 

"This is not a normal time of year for wheat prices to be getting higher," said Doug Houghtonne, analyst with Brock Associates. "You get prices up near the highs it's a little bit harder to find new buyers. People are looking at US$6.58 wheat and thinking that's awfully high."

 

Prices began the day session firmer, climbing after the U.S. Department of Agriculture released solid weekly export sales data and analytical report Strategie Grains cut its forecast for E.U. production, analysts said. News of fresh export business also boosted prices, they said.

 

The USDA said 2007-08 export sales for the week ended July 12 totaled 767,300 metric tonnes, 35% below the previous week but 7% above the prior four-week average. Analysts' expectations ranged from 450,000-800,000 tonnes.

 

The agency also announced private export sales of 106,000 metric tonnes of U.S. hard red winter wheat to Bangladesh and 115,000 metric tonnes of U.S. wheat to Egypt. Egypt's purchases included 55,000 tonnes of hard red winter wheat and 60,000 tonnes of soft red winter wheat.

 

Morocco, meanwhile, confirmed it bought 243,000 metric tonnes of U.S. soft wheat.

 

"The U.S. is practically the only game in town for world buyers for the next couple of months," Houghtonne said. "The E.U. stocks are so tight they're not going to be able to export much more than it did last year."

 

Strategie Grains cut its 2007-08 E.U. soft wheat crop forecast by 2.9 million metric tonnes from last month's projection to 118.9 million tonnes. French, German and U.K. wheat crops continue to struggle with overly wet conditions and disease problems, while Romania and Bulgaria have been hit by drought.

 

There also appeared to be some pressure on wheat from weakness in the neighboring CBOT corn market, a broker said. The CBOT wheat/corn spread became "so wide that there was probably a lot of spread trading going on," he said.

 

CBOT December corn ended down 6 1/4 cents at US$3.36 1/4.

 

Trading was choppy during the day session and will likely stay that way in the near-term amid fears about tight global supplies, analysts said. The USDA pegs 2007-08 world wheat stocks at their lowest level since 1981-82.

 

"The supply/demand situation is so sensitive when you look at world stocks levels," Houghtonne said. "It's hard to see prices going into any sustained downtrend at this time."

 

 

Kansas City Board of Trade

 

Trading was "extremely volatile" at KCBT, a floor trader said. There was early fundamental support from the export business to Egypt and Morocco and the solid weekly export sales report, he said.

 

Technical support kicked in as prices moved above recent highs, triggering buy stops, he said. Prices showed weakness as CBOT and MGE prices pulled back, he said. It seemed "like the market ran out of juice," he said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures began to pull lower amid what looked like commercial selling, a KCBT floor trader said. JP Morgan and ADM were big early sellers, he said.

 

"We were dragging Chicago down," the trader said.

 

U.S. Northern Plains spring wheat areas have some stress ahead during the next five days, according to DTN Meteorlogix. Hot, dry conditions will spread eastward from Montana as temperatures above 100 degrees Fahrenheit reduce soil moisture and crop conditions for spring wheat, the weather firm said.

 

However, the markets are probably more concerned about heat damage to spring wheat in southern areas Canada than in the U.S. Northern Plains, Houghtonne said. Canada planted less wheat this year than in 2007.