September 13, 2007

 

US Wheat Review on Wednesday: Slips sharply lower on late profit-taking

 

 

Late profit-taking and technical selling drove U.S. wheat futures sharply lower Wednesday, with some Chicago Board of Trade contracts closing limit down as the markets backpedaled from recent run-ups, traders said.

 

Before the retreat, CBOT wheat futures briefly rose above the significant level of US$9 per bushel. The volatile activity followed the release of a government crop report that contained few bullish surprises for wheat, analysts said.

 

CBOT December wheat ended limit down, or 30 cents lower, at US$8.60 1/2. KCBT December wheat settled 26 1/2 cents lower at US$8.32 1/2, and MGE December wheat dropped 23 1/2 cents to US$8.03 1/2.

 

CBOT December wheat climbed to a session high of US$9.07 in early trading before the market consolidated. The U.S. Department of Agriculture provided "nothing new" in its September supply and demand report, an analyst said.

 

Prices were also due for a correction as traders had gone on a "buying frenzy" going into the report, with several contracts closing limit-up Tuesday, a CBOT floor broker said.

 

CBOT wheat futures had strong bullish momentum at the opening Wednesday following Tuesday's sharp gains and a move overnight to a fresh all-time high of US$9.11 1/4 in the December contract. However, the market was unable to test the record highs during the day session.

 

The lack of shocking bullish news prevented wheat from sustaining its lofty price levels, CBOT floor traders said. The UDSA trimmed its forecasts for U.S. and world carryout, but the trade already had dialed in fears about tight U.S. and world stocks, analysts said.

 

"The trade had built a lot of this expectation in prior to the report," said Dave Marshall, an independent marketing advisor and commodities broker. "The fact that we were not able to immediately go out and test that overnight high looked kind of like 'buy the rumor sell the fact' trade."

 

Forecasts for continued dryness in Australia gave wheat futures early support, Marshall said. During the next seven days, showers will be mainly confined to southern areas of West Australia and Victoria, according to the DTN Meteorlogix forecast.

 

A few showers may reach to southern South Australia and southern New South Wales at times, but not on a sustained basis. Very little moisture is in store farther north, Meteorlogix said.

 

In its crop report, the USDA cut its estimate for Australia's production to 21 million metric tonnes from 23 tonnes. The decline was expected following a period of excessive dryness.

 

The USDA trimmed U.S. 2007-08 wheat ending stocks to 362 million bushels, from 404 million in August. If realized, the carryout would be the lowest since 1973-74, according to the USDA.

 

World wheat ending stocks for 2007-08 were pegged at a three-decade low of 112.4 million metric tonnes, down from 114.8 million in August. The reductions in stocks confirmed bullish fears about shrinking global supplies, but the cuts were largely expected, analysts said.

 

There also was some pressure on prices from unwinding of long wheat/short corn spreads, they said.

 

Looking ahead, the trade will continue to keep an eye on forecasts for Australia, traders said.

 

Traders will also get a closer look at the E.U. supply/demand situation on Thursday with the release of the September Strategie Grains report. The USDA decreased its estimate for the E.U.-27 crop to 121.83 million tonnes from 124.93 million tonnes.

 

The USDA on Thursday will release its weekly export sales report. The data will be watched closely to see whether record high prices have started to ration demand, analysts said. Analysts predict wheat export sales will remain hefty at 1 million to 1.45 million tonnes.

 

 

Kansas City Board of Trade

 

Spillover support from the overnight electronic trade and from Tuesday's limit-up close kicked KCBT wheat futures sharply higher at the open, a floor trader said. Prices tumbled as light selling triggered sell stops, he said.

 

"It was pretty light trade," the KCBT floor trader said. "Once we hit stops, it did not take a lot to puke this whole thing out."

 

The USDA said 52,500 tonnes of hard red winter wheat, traded at the KCBT, and 70,000 tonnes of hard red spring wheat, traded at the MGE, were sold to unknown destinations. However, the news did not attract much attention at the KCBT, traders said.

 

Instead, the market was focused on the USDA report and, later, on "this huge technical reversal," a trader said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures closed lower in a correction to recent rallies to record highs, a floor trader said. The markets are extremely technically overbought, he said.

 

The USDA raised its 2007-08 export forecast to 1.1 billion bushels from the August forecast of 1.075 billion bushels, although that was not a surprise, the trader said. With the rapid pace of export sales this summer, it would have been difficult for the agency to keep its export estimate unchanged, he said.