August 31, 2007

 

US Wheat Review on Thursday: Hits new all-time highs on demand, technicals

 

 

Relentless demand for U.S. wheat in the face of high prices catapulted Chicago Board of Trade wheat futures to fresh all-time highs Thursday, analysts said.

 

Nearby Chicago Board of Trade September wheat climbed to a high of US$7.74, topping the previous record high of US$7.60 set Wednesday, before closing up 28 cents at US$7.70 per bushel. Most-active CBOT December wheat set a new all-time high of US$7.88 1/2 and closed 26 cents higher at US$7.84 1/2.

 

Prices soared after the U.S. Department of Agriculture reported weekly export sales of 1.23 million metric tonnes, exceeding trade estimates of 700,000 to 1.1 million tonnes. Weekly export sales have topped 1 million tonnes for six of the past seven weeks as concerns about dwindling world stocks have brought importers to the U.S.

 

Unfavorable weather caused crop losses in areas that are traditionally big exporters, including Europe and the Black Sea region. The trade, meanwhile, is becoming more anxious that dryness in Australia and Argentina will hurt developing wheat.

 

Strong demand should continue to support U.S. wheat futures until the trade gets a better handle on production potential in the Southern Hemisphere, analysts said. The DTN Meteorlogix forecast calls for only scattered light showers in Australia during the next seven days and generally dry weather in Argentina's wheat country.

 

CBOT December wheat has been in a technical uptrend since July 3, said Joe Victor, vice president of marketing at Allendale Inc. in McHenry, Ill.

 

Until the contract dips to US$7.04 and the trend is disrupted, "what reason is there for wheat to come back?" Victor asked.

 

However, volatile price activity is often a sign that a market top may be near, said Tom Leffler, owner of Leffler Commodities.

 

"There's no doubt we're in that uptrend and we might go higher," Leffler said. "The trend is your friend. The risk is that when you're up there that high, you could fall off and the fall could be dramatic."

 

Commodity funds bought an estimated 5,000 contracts. In CBOT pit trades, MF Global bought 2,000 December and sold 300 December, while Goldenberg Hehmeyer bought 400 December.

 

Deliveries against the Chicago Board of Trade September wheat contract are generally expected to be 500 to 1,500 contracts, with owners reluctant to give up too much physical supply, floor traders and analysts said Thursday.

 

There is too much uncertainty regarding global production for commercials to deliver, a cash-connected CBOT floor trader said. Also, strong gains in the market Thursday make the commercials wonder whether concerns about tight supplies or production are expanding, he said.

 

 

Kansas City Board of Trade

 

News that Iraq issued a new tender to buy at least 50,000 metric tonnes of hard wheat was seen as supportive, a KCBT floor trader said. After so many weeks of sales of soft red winter wheat traded at the CBOT, "it's about time for hard red winter wheat" sales, he said. HRW wheat is traded at the KCBT.

 

The tender, however, wasn't considered especially bullish by everyone. Some traders said word of the Iraqi tender had been circulating since last week, while an analyst said Iraq wasn't a stable, long-term buyer like Egypt.

 

At the KCBT, deliveries are expected to be about 200 to 400 contracts, a floor trader said.

 

 

Minneapolis Grain Exchange

 

There was solid commercial and fund buying at the MGE, a floor trader said. Otherwise, the market was following gains at the CBOT, he said.

 

Traders said they expected deliveries of 300 to 700 contracts of MGE September wheat.