August 5, 2006

 

US Wheat Review on Friday: Crop estimate, weather supports prices

 

 

U.S. wheat futures rose Friday, bolstered by a friendly crop estimate from a private forecasting firm, a technical correction from recent losses and concerns over drought conditions on the southern Plains, sources said.

 

September futures on the Chicago Board of Trade rose 3/4 cent to US$3.96, while December gained 2 3/4 cents to US$4.17 1/4 a bushel.

 

The wheat markets rose on news that Informa Economics estimated the drought-reduced other spring wheat crop at 421 million bushels, versus the U.S. Department of Agriculture's 465 million July estimate. Informa's projection was based on a 29.7-bushel-per-acre yield, while the USDA's average yield was 33 bushels. The recently concluded 2006 spring wheat tour, however, pegged the average yield at 31.7 bushels, between the other two estimates.

 

The USDA will issue its new crop estimate on Friday, Aug. 11.

 

In addition, decreased supplies from Australia and Europe, amid adverse weather conditions, are increasing buying interest in the U.S. wheat markets.

 

The markets are turning increasingly toward demand and less toward supply, however, evidenced by the fact that the prices aren't trading to new highs on the supply news, said independent agricultural analyst John Kleist.

 

"Basis Chicago (September), we had to go down from around US$3.90 to US$3.80 to uncover demand, yet Chicago fails at over US$4 and Minneapolis and Kansas City fail at over US$5 - that's the upper limit of the demand," he said.

 

The market did receive positive demand news this week that export sales rose to a new marketing year high of a net 583,400 metric tonnes, sparked by lower prices.

 

Traders are watching for potential fresh export business from Iraq, China or India, but none has yet materialized.

 

Tenco bought 400 December, Calyon Financial bought 300 September, Prudential Financial bought 200 September and J.P. Morgan bought a net 100 September. Iowa Grain sold 500 December and Man Financial sold a net 100 September.

 

Rand Financial spread 500 September/December contracts at 20 cents.

 

Light fund buying supported the Chicago market, as they were net buyers of 700 contracts through 1:30 p.m. EDT.

 

 

KANSAS CITY BOARD OF TRADE

 

Kansas City hard red winter wheat futures were supported by another round of heat and dryness coming into the Midwest and the southern Plains, a trader said.

 

The ongoing drought on the southern Plains is bringing up potential planting concerns for the new HRW crop, and lending prices underlying support, Kleist said, even though planting is still a ways off.

 

ADM was an early seller of 100 September and December. Man Financial sold 100 December.

 

ADM spread 500 September/December contracts at 15 1/2-15 3/4 cents. Frontier Futures spread 450 December/September at 15 3/4 cents.

 

KCBT September rose 1 1/2 cents to US$4.86 and December gained 1/4 cent to US$5.01 a bushel.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

Minneapolis wheat led the complex higher on the Informa spring wheat estimate.

 

The spring wheat harvest is in full progress, and some yields are better than forecast, a trader said. Many traders expect that 35%-40% of the crop will have been cut when the USDA issues its weekly crop progress report on Monday, up from 22% last week.

 

September traded to a session high of US$4.85 on the news, equaling Tuesday's high, before backing off a bit ahead of the closing bell. The contract finds overhead resistance at the US$4.83 1/2 40-day moving average.

 

September gained 6 1/4 cents to US$4.82 1/4 and December added 6 1/4 cents to US$4.94.