September 11, 2007

 

US Wheat Review on Monday: Australia kicks some contracts up sharply

 

 

Some U.S. wheat futures soared to fresh all-time highs Monday as forecasts for more dry weather in Australia raised concerns that world supplies would continue to shrink, analysts said.

 

Ideas that high prices will lead to expanded wheat plantings weighed on deferred-month contracts, they added.

 

Chicago Board of Trade December wheat settled up 17 1/2 cents at US$8.61 per bushel. The contract traded electronically to a new high of US$8.72 1/2, exceeding the previous record of US$8.72 set overnight.

 

Kansas City Board of Trade September wheat finished 20 cents higher at US$8.30 after setting a new high of US$8.38. KCBT December wheat briefly rose limit up, or 30 cents higher, to US$8.37 1/2 and closed 21 1/2 cents higher at US$8.29.

 

Minneapolis Grain Exchange December wheat also briefly climbed limit-up before closing 24 cents higher at US$7.98. MGE March wheat set a new all-time high of US$8.07 and finished up 18 3/4 cents at US$8.02 1/2.

 

The markets were focused on forecasts for continued dryness in Australia after parched wheat fields received less moisture than expected during the weekend. Forecasts call for some scattered rain this week but not much widespread or soaking coverage, said Louise Gartner, analyst with Spectrum Commodities.

 

"If those rains don't materialize, then you have a serious problem on your hands," Gartner said. "You need rain and you need it now."

 

The DTN Meteorlogix forecast calls for rainfall of up to one-half inch in Victoria and the southern half of West Australia. The rains will help to maintain current yield forecasts for the Victoria region and the southern part of West Australia's wheat belt, the weather firm said.

 

However, stress continues to build on jointing to reproductive wheat, Meteorlogix said.

 

Production from Australia's wheat crop could reach 15 million to 19 million metric tonnes, according to an estimate issued Monday by Rabobank Australia Ltd. But the crop could undershoot this range if the weather remains dry in coming weeks, it said in a monthly review of Australian agriculture.

 

"Concern over a lack of needed rainfall in Australia's major wheat areas is high," Meteorlogix said.

 

Global wheat stocks in 2007-08 are seen at their lowest level since 1979-1980, according to the International Grains Council. Production problems in Europe and the Black Sea region have left the U.S. as the main exporter on the world market, and the trade was hoping that strong output in the Southern Hemisphere would help ease anxiety over tight supplies.

 

Argentina's primary wheat area of La Pampa and southern Buenos Aires provinces received light rain during the weekend and should see increasing rainfall during the next week, Meteorlogix said.

 

"The forecast rainfall this week will significantly improve conditions for emerging and developing wheat which has been impacted by cold, dry weather this past winter," Meteorlogix said. "Rainfall will also likely allow the few percent of the crop that has not yet been planted in the south to be planted."

 

However, conditions in Argentina are not as important to the trade as weather in Australia because Australia is a bigger export on the world market, Gartner said. Most of Argentina's exports go to Brazil, she said.

 

"Argentina looks like they're going to do OK," Gartner said. "They've had a good shot of rain."

 

Commodity funds bought an estimated 3,000 contracts at the CBOT. In pit trades, FC Stonnee bought 600 December.

 

Deferred-month contracts felt pressure from expectations that high prices will prompt farmers to plant more wheat, Gartner said. It is a "completely different situation" for the deferred contracts than the nearby contracts, she said.

 

 

Kansas City Board of Trade

 

The U.S. Department of Agriculture said weekly export inspections were 28.874 million bushels, below trade estimates of 31-36 million. However, export sales still remain strong, traders said.

 

Traders are expecting bullish adjustments in the USDA's September supply/demand report, a KCBT floor trader said. The USDA will likely cut its U.S. carryout estimate due to strong export sales and cut its world crop forecasts following unfavorable weather, analysts said.

 

The average trade estimate for 2007-08 U.S. wheat carryout is 376 million bushels, down from the USDA's August estimate of 404 million, according to a Dow Jones Newswires survey of 14 analysts. The analysts' projections ranged from 336 million to 405 million.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures felt spillover strength from gains in European markets and tightness in world supplies, traders said. The market is eagerly anticipating this week's export sales report Thursday to see whether there are signs of rationing due to high prices, a MGE floor trader said. Sales released last week for the week ended Aug. 30 were at the low end of trade estimates.

 

For the USDA's supply/demand report, there are expectations that production estimates for Canada, Australia, Argentina and the E.U. will be cut due to unfavorable weather, analysts said.