August 2, 2006
US Wheat Review on Tuesday: Minneapolis grain exchange leads markets lower; tech retracement
U.S. wheat futures, led by Minneapolis trading to over one-month lows, fell Tuesday on technical weakness and ideas recent gains were overdone. Harvest-related hedging and speculative-linked selling also pressured prices, sources said.
September wheat on the Chicago Board of Trade settled 5 cents lower at US$3.92 1/2, and December lost 3 1/4 cents to US$4.13 1/4 a bushel.
Hedge pressure, while not overwhelming due to a short spring wheat crop, nevertheless put some pressure on the market, said Shawn McCambridge, senior grains analyst at Prudential Financial.
"It kind of tells us that farmers probably aren't going to be too anxious to sell into a lower market," he said.
A technical retracement from Monday's gains pushed the wheat markets through sell stops, which exacerbated the losses, McCambridge said.
A break to the scorching heat on the northern Plains, in the form of scattered showers and lower temperatures this week, may improve yields in some areas, though the overall U.S. spring wheat harvest is speeding along at 22% complete, the U.S. Department of Agriculture said Monday.
A decline in the spring wheat crop ratings by 2 percentage points to 32% good to excellent, and with 35% of the crop now rating as poor or very poor, was expected and didn't have any meaningful bullish effect on prices, a trader said.
Losses in Chicago were subdued - a reversal from Monday's price action. CBOT September was held to an "inside day" on the bar charts.
This is due to the fund makeup of the markets, according to McCambridge. Funds hold a modest long position in Chicago, but they have large long exposure in Kansas City and Minneapolis. Funds therefore have more room to add to CBOT longs.
Conversely, when funds liquidate, less price pressure is often seen in Chicago because of the much larger fund short position there compared to the KCBT and MGE, he said.
In news, U.S. Agriculture Secretary Mike Johanns said Tuesday that Iraq will likely remain a strong buyer of U.S. wheat. Johanns, who is in Baghdad for a one-day visit, spoke to reporters via teleconference, and said "prospects look good" for continuing trade with Iraq.
Japan is expected to tender for 148,000 metric tonnes of food wheat on Thursday. It is expected to buy 60,000 tonnes of U.S. wheat, 25,000 tonnes of Canadian and 63,000 tonnes of Australian wheat.
Taiwan bought 96,340 metric tonnes of U.S. No. 1 wheat in a Tuesday tender. The deal involves two cargoes, with shipments scheduled for Sept. 3-17 and Sept. 21-Oct. 5.
CBOT funds sold a net 400 wheat contracts as of 1:30 p.m. EDT.
Tenco sold 400 September and Calyon Financial sold 300 September. Prudential Financial bought 200 September.
Fimat spread 1,000 December/September contracts at 20 cents and J.P. Morgan spread 800 September/December at 20 cents.
KANSAS CITY BOARD OF TRADE
Hefty losses were seen in Kansas City on a technical retracement there, as September fell to a two-week low of US$4.81 1/4 and settled near that level, a trader says.
In midday trade, ADM sold 300 December and 300 July and Man Financial sold 300 September. Fimat bought 200 September, J.P. Morgan bought 100 December and UBS bought 100 September.
KCBT September fell 10 3/4 cents to US$4.82 and December lost 8 1/2 cents to US$4.97.
With the losses, near-term technical support on September is found at the US$4.81 double-bottom low, McCambridge said. The US$4.77 area looms as the next target for market bears.
MINNEAPOLIS GRAIN EXCHANGE
The largest losses were seen in Minneapolis, and therefore more technical damage occurred. Support is now found at the June 26 US$4.58 low, which provides the next target for bears, McCambridge said.
The sharply lower close also puts the market firmly below the 10-day and 40-day moving averages, and is a negative technical development.
MGE September fell 17 1/2 cents to US$4.68 1/2 and December lost 14 3/4 cents to US$4.80.
