September 8, 2007

 

US Wheat Review on Friday: Rallies late to ration demand

 

 

U.S. wheat futures finished mixed Friday after some contracts rallied hard late in the session as part of an ongoing attempt to ration demand, analysts said.

 

Kansas City Board of Trade December wheat set another new all-time high, while other markets came within arm's reach of record price levels. However, deferred-month contracts generally settled weaker amid expectations that surging futures prices will encourage more worldwide wheat plantings, analysts said.

 

Chicago Board of Trade December wheat closed 19 1/2 cents higher at US$8.43 1/2 per bushel, up a steep 68 cents on the week. KCBT December wheat soared 18 3/4 cents to US$8.07 1/2, up 76 1/4 cents on the week. Minneapolis Grain Exchange December wheat ended 14 1/4 cents higher at US$7.74, up 62 1/2 cents on the week.

 

The sharp gains came as traders continued to try to find the price level that would cause a slowdown in exports, analysts said. U.S. wheat futures climbed to record highs this week in all three markets on shrinking world supplies and strong demand.

 

"You're still in this area of probing what level it's going to take to ration demand," said Greg Wagner, director of marketing and risk management for Horizon Ag Strategy in Chicago.

 

The U.S. Department of Agriculture said weekly export sales as of Aug. 30 totaled 718,600 metric tonnes, at the low end of trade estimates. Analysts had expected to see sales of 700,000 to 1.2 million tonnes.

 

The export sales were 42% below the previous week and 34% under the prior four-week average. They marked just the second time in the last eight weeks that sales were below 1 million tonnes.

 

However, the data still did not indicate that the market was rationing demand, Wagner said. Considering high prices, "the export sales number, I'd have to say, is still solid," he said.

 

Indeed, there is still a lot of export business being done, a CBOT floor broker said. Egypt, India, Iraq and Morocco were all noted buyers this week.

 

Weekly export sales figures will have to come in at even lower levels in back-to-back weeks before the market is going to start to deflate, Wagner said.

 

CBOT wheat futures opened lower Friday on profit-taking following a pullback overnight and amid losses in European markets. Liffe's European wheat futures continued its bout of profit-taking Friday after the recent advances to record highs, traders said.

 

A lack of sellers, strong bid on the screen and active buying in the options pit helped the market bounce higher, a CBOT floor broker said. In pit trades, JP Morgan bought 400 December, and MF Global bought 300 December. Commodity funds bought an estimated 3,000 contracts.

 

Looking forward, the market next week will wait to see where the USDA pegs world and U.S. ending stocks in its September supply and demand reports, traders said. The stocks-to-use ratio is now at its lowest level in history, Wagner said.

 

"In terms of the stocks-to-use ratio, we're the tightest we have ever been, and its getting tighter," Wagner said.

 

The trade also will be keeping a close eye on forecasts for rain in Australia and Argentina after a period of extreme dryness, traders said. Further rallies to fresh record highs hinge on weather in the Southern Hemisphere, Chicago-based AgResource Company said in a market comment.

 

Argentina's primary wheat areas of southern Buenos Aires and La Pampa are expected to see increasing rainfall during the next five to seven days, DTN Meteorlogix said. This should help replenish soil moisture for early spring growth.

 

In Australia, light showers were headed for West Australia wheat areas Friday. A second system may produce showers in the area next Wednesday, Meteorlogix said.

 

As much as 0.5 inch of rain will fall on Victoria and southern New South Wales by Monday, according to Meteorlogix. Otherwise, the next week will be mostly dry.

 

"Rainfall is needed in all areas but it is especially needed in northern areas of the west and southern areas of the east," Meteorlogix said about Australia.

 

 

Kansas City Board of Trade

  

KCBT December wheat set another new all-time high of US$8.10 per bushel, exceeding the previous intraday high of US$8 set Thursday. Nearby contracts were firm for most of the day session on bullishness about demand, a floor trader said.

 

Private exporters reported to the U.S. Department of Agriculture export sales of 110,000 metric tonnes of hard red winter wheat for delivery to unknown during the 2007-08 marketing year, the USDA said Friday. The 2007-08 marketing year for wheat began June 1.

 

There was also supportive chatter about recent business with Iraq, a KCBT floor trader said.

 

 

Minneapolis Grain Exchange

  

MGE wheat futures showed some strength while the CBOT stumbled in early dealings, a floor trader said. It felt as though the market was trying to tighten up the inter-market spread, he said.

 

An early harvest across western Canada means that many farmers are already planting their winter wheat for next year. While actual acres still remain to be seen, good prices and the large planting window point toward another large crop, said an industry official.

 

Western Canadian farmers harvested 1.5 million metric tonnes of winter wheat in 2007 on 1.1 million acres, according to Statistics Canada data. The production was up considerably from 940,000 tonnes in 2006, when farmers had only planted 650,000 acres to the crop.