September 15, 2006

 

US Wheat Review on Thursday: Decline continues on fund sales, technicals

 

 

U.S. wheat futures continued their decline and fell Thursday on a weak technical picture that inspired speculative-led selling and took prices through sell stops, sources said.

 

Basis December contracts, the Chicago Board of Trade settled 7 cents lower at US$3.90 1/2, the Kansas City Board of Trade fell 7 cents to US$4.59 and the Minneapolis Grain Exchange lost 4 1/4 cents to US$4.40 1/4 a bushel.

 

Prices rose early as traders covered short positions, but when CBOT December couldn't top the key US$4.00 area "there were strong indications that the buying interest just wasn't going to be there," said Shawn McCambridge, senior grains analyst at Prudential Financial in Chicago.

 

Early buyers turned sellers, who ran the market into stops and ignited the sell-off.

 

Weekly export sales that were at the low end of trade expectations and considered routine also pressured the market, McCambridge said.

 

Wheat sales for the week ended Sept. 7 were a net 337,300 metric tonnes, 12% below the previous week and 16% under the previous four-week average, the U.S. Department of Agriculture reported.

 

The largest sales were made to Egypt with 60,000 tonnes, Taiwan at 51,000 tonnes, Yemen at 46,400 tonnes and Japan at 32,900 tonnes.

 

Bullish traders are hoping that the lower prices might spark a country such as Egypt to purchase additional U.S. wheat on top of the 120,000 tonnes it already bought this week.

 

Bulls may also look to the potential for a tightening global balance sheet to provide support in the future, with noted crop problems in South America, Europe and Australia, McCambridge said.

 

With the price decline, CBOT December hit a fresh three-week low. The technical picture continues to weaken with each day of lower closes, and the market is now approaching oversold conditions with a relative strength index reading of 33%. An RSI of 30% or below is normally considered oversold.

 

In other news, Japan bought 116,000 tonnes of milling wheat, which included 55,000 tonnes of U.S., 20,000 tonnes of Canadian and 41,000 tonnes of Australian wheat.

 

Meanwhile, Strategie Grains on Thursday estimated that the 2006-07 E.U. soft wheat crop will be 5% lower than last year, down 0.69 million tonne. The downward revision is due to adverse weather in northern and eastern European countries.

 

The E.U. rejected all bids in its weekly tender Thursday, data showed.

 

At the CBOT, Man Financial sold 1,300 December, J.P. Morgan sold a net 700 December, Calyon Financial sold 700 December, Fimat sold a net 500 December, while Iowa Grain and ABN Amro each sold 200 December.

 

Rosenthal-Collins bought 500 December, Tenco bought 300 December, and UBS Securities and DT Trading each bought 200 December.

 

Funds were net sellers of 4,000 contracts as of 1:30 p.m. EDT.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT December neared a four-week low with the decline to US$4.58 1/2 a bushel.

 

Technically, the market has now moved into oversold conditions with an RSI of 30%, and prices are trading well below their major moving averages.

 

Prices firmed earlier in the day, however, on rumors of potential Iraqi business and light short-covering spawned by recent price declines, a trader said. Follow-through selling interest developed later in the day once Chicago broke to fresh lows.

 

In early trade, Fimat bought 500 December and 100 March, Prudential Financial bought 300 December, while UBS sold 100 December.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE December wheat hit a fresh four-month low of US$4.40 on the selling interest, which was mostly tied to losses in Chicago and Kansas City.

 

December spring wheat is entrenched in technically oversold conditions with an RSI of 23%.

 

Since the Sept. 5 close, December wheat has lost 29 1/2 cents a bushel.