August 24, 2007

 

US Wheat Review on Thursday: CBOT December sets record high on strong demand

 

 

U.S. wheat futures finished firmer on strong demand but trimmed gains after climbing to historic highs, with Chicago Board of Trade December wheat setting a new all-time high in early trading, analysts said.

 

Chicago Board of Trade September wheat rose 4 cents to settle at US$7.22 1/2 a bushel and set a new 11-year high of US$7.41, exceeding its previous contract high of US$7.20. CBOT December wheat ended up 7 1/4 cents at US$7.39 and set a new all-time high of US$7.54, exceeding the previous all-time record of US$7.50.

 

The US$7.50 all-time high, set in March 1996, was for a nearby contract. CBOT December wheat is the second-month contract, but the record still stood as the record all-time high at the CBOT and was seen as an important price target, analysts said.

 

Adjusted for inflation, US$7.50 in 1996 is equal to US$9.96 in 2007.

 

Kansas City Board of Trade September wheat finished 6 3/4 cents higher at US$6.73 3/4. KCBT December wheat climbed 8 cents to US$6.88 1/2.

 

Minneapolis Grain Exchange September wheat settled 8 1/2 cents higher at US$6.70 1/2, and MGE December wheat closed 10 cents higher at US$6.81 1/2.

 

Wheat futures soared after the U.S. Department of Agriculture reported solid weekly sales of 1.05 million metric tonnes for the week ended Aug. 16. Despite soaring prices, world buyers have bought U.S. wheat at a rapid pace amid production problems in Europe and the Black Sea region.

 

Strong demand is expected to continue in the near term as importers wait to see how much wheat the Southern Hemisphere will produce, traders said. Following a severe drought last year, Australia, a major world exporter, is off the global market until it can harvest its wheat this fall.

 

"The buying has been incredible," said John Kleist, analyst with Kleist Ag Consulting. "It's been amazing."

 

A lower-than-expected crop estimate from Statistics Canada also was seen as bullish because it implied less competition from Canada for exports, an analyst said. Statistics Canada slashed its projection for 2007-08 all-wheat production to 20.322 million tonnes, down from 25.265 million in 2006-07.

 

Looking forward, US$8 is the next major price target for CBOT December wheat but getting there depends on importers continuing to book supplies at ever higher prices, Kleist said. Demand for U.S. wheat could slow if major importers start to see improvements in the Australian and Argentine crops, he said. Parts of the countries' wheat-growing regions have suffered from dryness.

 

Analysts agreed the move to historic high prices would encourage growers around the world to seed more wheat. It wouldn't be surprising to see the world's largest wheat crop ever next year, said Sid Love, analyst with Kropf & Love Consulting.

 

"In my opinion, only bad weather will prevent us from having a record world wheat crop in 2008," Love said. "If farmers don't plant wheat at these prices, they should be given 15 yards for unsportsmanlike conduct." Even if world plantings rise to unprecedented levels, the wheat still won't be available until next spring at the earliest, an analyst said.

 

Commodity funds bought an estimated 4,000 contracts at the CBOT. In pit trades, Fortis bought 2,000 September.

 

 

Kansas City Board of Trade

 

KCBT December wheat rallied to a session high of US$7 on strong demand and spillover support from gains at the CBOT, a floor trader said. KCBT December wheat's previous contract and 11-year high was US$6.94.

 

The market pulled back from its highs on profit-taking and amid the setback at the CBOT, the trader said.

 

Traders expected Statistics Canada's all-wheat production estimate to be more in line with the USDA's projection of 21.5 million, the trader said. The lower-than-expected crop forecast was friendly, although the market is really being ruled by demand, he said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures felt an early boost from strength at the CBOT and in European markets, a floor trader said. Paris-based milling wheat futures traded on Liffe opened on a record high Thursday on tight global supplies and spillover strength from U.S. wheat futures but trimmed gains before the close.

 

The U.S. and E.U. wheat markets have been feeding on each other, traders said. Rain continues to fall in parts of the U.K. to further delay the remaining wheat harvest and threaten quality and yields.

 

World 2007-08 wheat ending stocks are at their lowest since 1979-80, according to an updated forecast from the International Grains Council.

 

The IGC cut its forecast for the 2007-08 E.U. wheat crop by 3.9 million tonnes to 122.8 million. IGC also cut the its world wheat crop estimate by seven million tonnes to 607 million.