September 12, 2006

 

US Wheat Review on Monday: Short-covering lifts prices off lows

 

 

U.S. wheat futures closed lower Monday, pressured by light fund selling and weakness in the neighboring corn and soybean pits that was countered later by short-covering, sources said.

 

Basis December contracts, Chicago Board of Trade wheat lost 2 1/2 cents to US$4.13, Kansas City Board of Trade fell 2 1/4 cents to US$4.78 and Minneapolis Grain Exchange lost 2 1/2 cents to US$4.59 1/4.

 

Light speculative sales were generated by widespread commodity weakness and the resulting sharply lower trade in the Reuters/Jefferies Commodity Research Bureau index.

 

Early pressure also was tied to news that India decided not to buy any U.S. wheat as part of its 1.67-million-metric-tonne purchase from various countries. Traders and analysts had expected the U.S. would capture at least a share of that export business and were encouraged to sell when it failed to materialize.

 

However, short-covering was thought to have taken prices off their lows and losses were pared into the closing bell. Many traders feel the U.S. Department of Agriculture will lower world production when it issues its September crop report Tuesday, though they don't expect much change in the domestic balance sheet until after the Sept. 29 release of the quarterly grain stocks and small grains reports, said Shawn McCambridge, senior grains analyst at Prudential Financial in Chicago.

 

He believes the USDA, however, will be somewhat conservative in its production estimates, at least until it gets a better feel for just how much crop damage has occurred in Australia and South America. One recent estimate said the Australian crop could be in a range of 13-19 million metric tonnes because of dry weather. The USDA currently pegs the crop at 21.5 million tonnes.

 

Brazil's 2006 winter wheat crop is seen 35% lower than the previous year at 3.1 million tonnes, due to falling local commodity prices and a lack of investment in the crop, the National Commodities Supply Corp. said Monday. The estimate does not, however, include the effect of last week's freezing temperatures in Parana and Rio Grande do Sul.

 

U.S. wheat export inspection estimates for the week to Sept. 7 came in at 9.637 million bushels, below expectations for 15-20 million.

 

Inspections were down sharply from the previous week's 21.786 million bushels. For the marketing year to date, wheat inspections total 222.008 million bushels, versus 253.670 million at the same time last year.

 

ABN Amro sold 800 December, while Calyon Financial, Man Financial and UBS each sold 300 December. J.P. Morgan bought and sold 500 December.

 

Funds sold a net 2,000 wheat contracts as of 1:30 p.m. EDT. Funds also were net sellers of corn and soybeans.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT December wheat rebounded to near session highs by the closing bell as traders covered short positions. A gap-lower opening in all three wheat markets set the early bearish tonnee, however.

 

December hit a US$4.70 low amid the early selling - its weakest price since Aug. 24 when it traded to US$4.68 a bushel.

 

Significant rains in western Kansas in recent weeks have alleviated moisture deficits ahead of planting and improved topsoil conditions.

 

Traders will increasingly focus on winter wheat seedings, which are expected to be higher than 2006 levels on lower input costs and better wheat returns versus other cash grains, said Brian Hoops, senior market analyst and president of Midwest Market Solutions in Yanktonne, S.D.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE December wheat futures closed lower, but finished near session highs, lifted by late short-covering. The contract was initially pressured to more than a two-week low of US$4.54 1/2 on light fund selling, following similar activity in the other markets.

 

U.S. spring wheat quality remains "excellent" as the harvest winds down, the North Dakota Wheat Commission said. The average test weight for hard red spring is 60.1 pounds per bushel this week, down slightly from 60.3 pounds the previous week. Average protein has held steady at 15 percent.