September 27, 2006

 

US Wheat Review on Tuesday: Closes limit up, sets new all-time highs

 

 

U.S. wheat futures bolted to fresh record highs Tuesday and closed limit up in many contracts amid fears that drought may slash Australian production for the second year in a row, analysts said.

 

Bigger-than-expected purchases from India also shoved prices higher, they said.

 

Nearby Chicago Board of Trade September wheat traded as much as 43 cents higher during the day session and set an all-time high of US$8.10 per bushel, exceeding the previous intraday high of US$8.05. The contract, exempt from the typical 30-cent trading limit because it is in delivery, closed up 40 cents at US$8.07.

 

Most-active CBOT December wheat closed limit up, 30 cents higher, at US$8.05 1/2. The pool of unfilled orders in the pit was about 1,500 contracts, a floor trader said.

 

KCBT December wheat closed 30 cents higher at a new high of US$7.61 1/4, exceeding the previous high of US$7.50. MGE December wheat also settled limit up at US$7.41 1/2.

 

Amid historically tight global supplies, the trade is focused on threats to production in the Southern Hemisphere, analysts said. Hot, dry weather has dogged Australia's developing wheat crop, and forecasts show little chance of significant rain in the next week.

 

The DTN Meteorlogix forecast calls for a few showers in portions of Queensland during the next five days, and West Australia's wheat areas could see light showers Thursday or Friday. Otherwise, little moisture is expected in the wheat belt during at least the next week, the weather firm said.

 

The U.S. Department of Agriculture last month pegged Australia's wheat production at 23 million metric tonnes, but private growers estimate output will be significantly lower. One Australian wheat grower warned production could even drop to 10 million tonnes, about the same as last year, unless widespread, heavy rains fall this month.

 

"Those Aussies are getting in trouble," said Jerry Gidel, analyst with North America Risk Management Services in Chicago. "They're talking 20 (million tonnes) or less. Yikes!"

 

The London-based International Grains Council recently pegged 2007-08 world wheat ending stocks at their lowest since 1979-1980.

 

India made the world wheat situation even tighter during the long Labor Day weekend by announcing Monday it bought a total of 795,000 metric tonnes of wheat from three companies. The size of the purchases greatly exceeded expectations, traders said.

 

India now plans to issue another tender to import wheat, a senior government official said. India has said it plans to import 5 million tonnes this year and has bought only 1.306 million tonnes so far.

 

U.S. wheat futures are expected to remain strong moving forward as a good number of unfilled orders showed that there were many buyers left in the market, a CBOT floor trader said. However, Gidel said he would not be surprised to see some profit-taking Wednesday following Tuesday's limit-up moves.

 

 

Kansas City Board of Trade

 

Along with dryness in Australia and the massive Indian import business, KCBT wheat futures found further strength in ideas that Russia will consider limitations on grain exports, a KCBT floor trader said. Russia's government has said it would only consider limiting exports after the 2007 harvest is completed, but the possibility is still bullish because a ban or suspension on exports would send more business to the U.S., traders said.

 

Argentina's wheat crop also may be disappointing if excessively dry conditions persist, the KCBT floor trader said. A few showers are forecast in Argentina during the first part of next week, but very little is seen through the next five days, according to Meteorlogix.

 

 

Minneapolis Grain Exchange

 

MGE followed the same bullish storyline as the other markets, including dryness in Australia, a floor trader said. Limit-up moves at the CBOT and KCBT spurred MGE to trade limit up, he said.

 

Record highs in EU wheat futures were another key catalyst behind the U.S. rally, the MGE trader said. Liffe's Paris-based November milling wheat set a fresh contract high of EUR286.75/tonne, which was EUR14.75/tonne above the previous contract high set Friday.