September 14, 2007

 

US Wheat Review on Thursday: Down on profit-taking, technical selling

 

 

Profit-taking and technical selling dragged U.S. wheat futures lower Thursday as the markets shrugged off the largest weekly export sales report in more than a decade, analysts and traders said.

 

Chicago Board of Trade December wheat dropped 15 1/2 cents to US$8.45 per bushel. Kansas City Board of Trade December wheat fell 7 1/2 cents at US$8.25, and Minneapolis Grain Exchange December wheat closed down 14 cents to US$7.89 1/2.

 

CBOT December wheat came within 1/2 cent of hitting limit down, or 30 cents lower, during the session. However, the markets trimmed losses going into the close.

 

Much of the pressure on wheat came from traders looking to take profits after futures prices rallied to fresh all-time highs, analysts said. CBOT December wheat soared to a record of US$9.11 1/4 in Wednesday's overnight electronic trading session and briefly rose above the key US$9 level again during Wednesday's day session before retreating.

 

CBOT December and March wheat closed limit down Wednesday on profit-taking, and there was follow-through technical selling Thursday, traders said.

 

"Obviously we had big reversals yesterday," said Doug Houghtonne, analyst with Brock Associates. "We had some follow-through today. There are people taking profits."

 

Prices slumped even though the U.S. Department of Agriculture said export sales for the week ended Sept. 6 were 2.1 million metric tonnes, the highest since January 1996. The sales were a marketing-year high and well above trade estimates of 1 million to 1.45 million tonnes.

 

Top buyers included Egypt, which took 413,800 tonnes; unknown destinations, which bought 350,800 tonnes; and Iraq, which bought 200,000 tonnes. The export sales were "amazingly good," Houghtonne said, although some of the business, such as the sale to Iraq, was already known.

 

Looking ahead, the world supply and demand situation is still tight, and the trade is still concerned about Australia's production, Houghtonne said. Australia's wheat crop is in the jointing to reproductive stages, and needs rain to maintain current yield and production forecasts, DTN Meteorlogix said.

 

Any shower activity during the next seven days will be mainly confined to southern areas of West Australia and Victoria, according to Meteorlogix. A few showers may reach to southern South Australia and southern New South Wales at times, the weather firm said.

 

"Very little rainfall is in store farther north," Meteorlogix said. "This keeps a stressful situation in place over much of the Australia wheat country."

 

Strategie Grains, meanwhile, raised its E.U. wheat crop estimate Thursday by 590,000 tonnes to 114.7 million tonnes, breaking a string of downward revisions seen throughout the summer. However, the increase was seen as small and not considered a big factor for the market, a CBOT floor trader said.

 

Strategie Grains said U.S. and E.U. wheat prices will remain well-supported in the short term due to uncertainties over Australia's crop. However, Strategie Grains added that in the medium term, 2008 crop prices will likely "start exerting a downward pull on 2007 crop prices," assuming Australia's crop is not lower than currently expected and Russia doesn't curtail its exports.

 

Indeed, CBOT July 2008 wheat seems to have made a "significant top," Houghtonne said. Prices rallied to encourage producers to plant more wheat, analysts said.

 

"The market's probably already bought the acres it's going to buy for this fall," Houghtonne said. "I'd say new crop prices could continue to slide back here in the near term unless we start to have planting problems. Until the market sees the acreage number and knows what it is next January, there's probably not going to be a lot of impetus for the upside for new crop wheat."

 

CBOT July wheat closed down 10 cents at US$5.82.

 

 

Kansas City Board of Trade

 

Wheat futures opened mixed but it seemed as though the downside was the path of least resistance after the heavy losses Wednesday, a KCBT floor trader said. It seemed as though the market needed to take a step back from the recent highs, but traders are still focused on weather problems in Australia, he said.

 

Of the total weekly export sales, 1.4 million tonnes were hard red winter wheat, according to the USDA.

 

"More than half the sales were hard red winter wheat," the trader said. "That was supportive."

 

 

Minneapolis Grain Exchange

 

Traders nervous about lofty prices took money off the table, a MGE floor trader said. The market trimmed losses late amid position-evening, he said.

 

Temperatures dropped below freezing overnight Wednesday in the grain- producing regions of central and northern Alberta and Saskatchewan. Yields weren't likely to have been significantly impacted, but the quality of the crops in those areas probably suffered some more, said Bruce Burnett, Director of the Canadian Wheat Board's Weather and Crop Surveillance Department.

 

Temperatures overnight Thursday were also expected to drop below freezing, but the coverage will include parts of all three prairie provinces, said Drew Lerner of World Weather Inc. He said readings were expected to range as low as minus 5 degrees C to about plus 1 degree Celsius.