August 10, 2007

 

US Wheat Review on Thursday: Ends down after hitting fresh 11-year highs

 

 

Profit-taking dragged down U.S. wheat futures Thursday after prices leapt to fresh 11-year highs on tight global supplies, analysts said.

 

Chicago Board of Trade September wheat closed down 5 1/2 cents at US$6.73 1/2 per bushel. The contract earlier set a fresh 11-year high for a front month contract of US$6.96, exceeding the previous high of US$6.82 set Wednesday.

 

CBOT December wheat closed down 10 cents at US$6.91. The contract set a new all-time high for a second-month of US$7.10 1/2, exceeding its previous high of US$7.04.

 

Kansas City Board of Trade September wheat finished 1 3/4 cents lower at US$6.60 1/4. The contract set a fresh 11-year high for a front-month of US$6.74, topping the contract's previous high of US$6.66.

 

Minneapolis Grain Exchange September wheat settled 1 1/4 cents lower at US$6.70 and set a fresh 11-year high of US$6.82, exceeding the previous high of US$6.72 1/2.

 

The trade is looking ahead to the release of the U.S. Department of Agriculture's August crop production and supply/demand reports on Friday, analysts said. Profit-taking going into the reports pulled prices lower near the end of the day session, traders said.

 

Nevertheless, there are bullish expectations the USDA will cut its estimates for U.S. and world ending stocks. The agency also is expected to lower output estimates for Canada and the E.U. due to adverse weather, analysts said.

 

Historically tight global supplies and production problems in the Northern Hemisphere have driven up U.S. export business recently, and further reductions could lead to more sales, an analyst said.

 

"We know demand is driving the market," a market analyst said. "The U.S. is really the primary port of origin in the world for freshly harvested wheat that is actually pretty high in quality."

 

Weekly U.S. wheat export sales for the week ended Aug. 2 were 890,900 metric tonnes, within trade estimates of 600,000 to 1.05 million tonnes. Major buyers included South Africa, which took 110,000 tonnes, and Taiwan, which bought 102,400 tonnes.

 

The sales were down from the past two weeks, when sales topped 1 million tonnes, but still seen as solid, an analyst said. Sales more than 700,000 tonnes are considered impressive, he said.

 

However, some market participants may have interpreted the drop-off as "a red flag some importers are stepping back" from the market, the analyst said. That would be bearish, he noted.

 

In CBOT pit trades, UBS bought 400 September. Fimat spread 1,000 September/December, and Lehman spread 1,000 May/December.

 

Historic highs in E.U. wheat futures were another early supportive factor for U.S. wheat, an analyst said. Paris- and London-based wheat futures traded on Liffe finished firmer, but off session highs.

 

France's agricultural ministry Thursday reinforced concerns about crop losses due to adverse weather by pegging the country's soft wheat output at 32.9 million metric tonnes, 1.1% below last season's crop and down 4.4% on the previous five-year average. The estimate is 1.8 million tonnes lower than the ministry's July forecast.

 

 

Kansas City Board of Trade

 

Weekly export sales were seen as friendly to KCBT wheat futures, and the market found further support from continued talk about shrinking world supplies, a floor trader said.

 

Extreme weather has reduced Bulgaria's annual wheat crop to an estimated 2.2 million tonnes in 2007 from 3.2 million tonnes last year, according to government estimates. Growing areas suffered from heat waves and floods.

 

The average analyst estimate for 2007-08 U.S. wheat carryout in the USDA crop report was 402 million bushels, down from the USDA's July estimate of 418 million bushels, according to a Dow Jones Newswires survey.

 

The average analyst estimate for 2007-08 U.S. all-wheat production was 2.129 billion bushels, down slightly from the USDA's July estimate of 2.138 billion, according to the survey. In 2006, all wheat production was 1.812 billion.

 

The average analyst estimate for all winter wheat production was 1.554 billion, down from the USDA's July estimate of 1.562 billion. In 2006, winter wheat production totaled 1.298 billion.

 

 

Minneapolis Grain Exchange

 

The average analyst estimate for other spring wheat production was 508 million bushels, up from the USDA's July estimate of 498 million, according to the survey of analysts. In 2006, other spring wheat production was 460 million.

 

The average analyst estimate for durum production is 78 million bushels, down from the USDA's July estimate of 79 million. In 2006, durum production totaled 53 million.