September 1, 2007

 

US Wheat Review on Friday: Ends mixed after fresh record highs

 

 

U.S. wheat futures closed mixed on profit-taking Friday after charging to fresh all-time highs in early trading, analysts said.

 

Chicago Board of Trade December wheat slipped 9 cents to end at US$7.75 1/2, up 33 1/2 cents on the week. Kansas City Board of Trade December wheat finished down 2 1/4 cents at US$7.31 1/4, up 33 1/4 cents on the week. Minneapolis Grain Exchange December wheat settled up 5 3/4 cents at US$7.11 1/2, up 28 1/2 cents on the week.

 

Prices rallied on the opening amid follow-through buying from the overnight and spillover support from gains in Paris-based wheat futures. Nearby CBOT September wheat surged to a new high of US$7.95 and most-active CBOT December wheat set a new all-time high of US$8.05, with both exceeding the previous record of US$7.88 1/2.

 

The markets quickly pulled back from the highs as traders took profits before the holiday weekend and at the end of the month, an analyst said. The CBOT, KCBT and MGE are closed Monday for Labor Day.

 

Looking forward, the trade will be waiting to see whether the weekend brings results to recent tenders from India and Iraq.

 

India said it was seeking more wheat from suppliers who had already offered 530,000 metric tonnes in the recent tender. Although the U.S. isn't expected to sell wheat to India because of disputes over quality restrictions, the expanded tender is bullish because it will take even more wheat off the world market, an analyst said.

 

Still, the markets may already have factored in a good amount support from the Indian and Iraqi tenders, said John Kleist, analyst with Kleist Ag Consulting.

 

Traders also will be eager to see whether forecasts for rain in Australia turn out to be accurate. The trade is anxious to get a handle on production potential in the Southern Hemisphere amid historically tight global ending stocks.

 

The DTN Meteorlogix forecast calls for a chance for showers in the eastern and southwestern Australia wheat areas during next week, but early indications suggest only light amounts of rain. More is needed to ward off a second consecutive below-average wheat harvest in Australia, the weather firm said.

 

In Argentina, a few showers will develop during the middle of next week, according to Meteorlogix. However, the best chance for rain is over eastern Buenos Aires province, outside the main wheat-growing belt.

 

In other developments, recent market activity "smacks of a squeeze" on short position holders as open interest has declined in recent days, Kleist said. CBOT September wheat open interest Thursday was down 4,427 contracts and CBOT December wheat down 4,844 contracts, according to the exchange.

 

Wheat has been a bull market with world supplies at historically low levels amid global production problems. However, if wheat is a bull market, "why don't you have new longs just pounding into the market?" Kleist asked. "In September, it seems like some shorts overstayed their welcome, and they got trapped."

 

Commodity funds sold an estimated 2,000 contracts at the CBOT. In pit trades, UBS sold 600 December. JP Morgan bought 400 December and sold 500 December.

 

 

Kansas City Board of Trade

 

KCBT December wheat set a new day session high of US$7.50, exceeding the previous high of US$7.44.

 

A "huge" number of deliveries posted against the KCBT September wheat future pressured the contract, said Larry Glenn, owner of Glenn Commodities in Wichita, Kan. There were 3,140 contracts posted in Hutchinson on first notice day, well above trade estimates that deliveries would total 200 to 400 contracts.

 

The heavy deliveries were "part of the reason that the September has been losing ground to the December," Glenn said. "You're just throwing that much wheat out onto the open market."

 

Traders had expected deliveries to be light and said they thought owners would be reluctant to give up too much physical supply while global wheat stocks are historically tight. The large deliveries were a "conflicting sign that helped all the wheat pits get some profit-taking," Kleist said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures wheat closed mostly higher amid a lack of strong country selling, a floor trader said. After the markets made new highs, MGE futures went into a sideways trading range, he said.

 

There wasn't much activity in inter-market spreads, the trader said. He said big pullbacks are possible next week if Australia receives rain during the three-day weekend.

 

If the rain falls, "this thing could get pretty ugly," he said.