US Wheat Review on Wednesday: Falls on CFTC; sets fresh contract lows

 

 

U.S. wheat futures set fresh contract lows Wednesday and closed modestly lower on expectations for liquidation after government regulators revoked speculative position limit exemptions for two entities, analysts said.

 

Chicago Board of Trade December wheat closed down 4 3/4 cents at US$4.93 1/2 a bushel. Kansas City Board of Trade December wheat dropped 1 cent to US$5.13 1/2, and Minneapolis Grain Exchange December wheat fell 2 cents to US$5.38 1/2.

 

The Commodity Futures Trading Commission revoked permission to a unit of Deutsche Bank and one other entity that had allowed them to legally evade trading limits on wheat, corn and soys. Prices fell in a knee-jerk reaction as traders figured funds would be forced to liquidate positions to comply with the limits, analysts said.

 

The markets trimmed losses after falling more than 10 cents in an initial sell-off. KCBT December wheat set a fresh contract low of US$4.85 1/2 in electronic trading, below the previous low of US$4.92 1/2.

 

"I can certainly understand the market's knee-jerk reaction," said Dan Manternach, ag services director at Doane Advisory Services. "Everyone knows the index funds hold a huge long position."

 

The longer-term impact of the CFTC's action is unclear amid questions about how much time the entities will have to liquidate positions and how many contracts they would need to liquidate to be in compliance with CFTC limits, Manternach said. The impact of the liquidation on the market would be muted if it took place during a period of several months, an analyst said.

 

The setback in prices followed gains earlier in the trading session on short-covering and news that Egypt had booked some U.S. wheat in a tender, traders said. Non-commercial speculative funds hold a large net short position in CBOT wheat.

 

Commodity funds sold an estimated 3,000 contracts at the CBOT.

 

 

Kansas City Board of Trade

 

KCBT wheat closed slightly lower after trading both sides. The CFTC's announcement put pressure on prices after earlier strength, traders said. KCBT December wheat set a fresh contract low of US$5.03 1/2 in electronic trading.

 

Egypt booked 120,000 tonnes of U.S. wheat in its tender out of a total purchase of 270,000 tonnes. Egypt also bought French, Canadian and Russian wheat in the tender.

 

 

Minneapolis Grain Exchange

 

MGE wheat finished weaker with the other markets. December wheat touched a fresh contract low of US$5.39 3/4.