September 15, 2007

 

US Wheat Review on Friday: Modest gains on position-squaring

 

 

U.S. wheat futures closed mostly higher Friday as traders squared positions before the weekend and after heavy losses during the previous two day sessions, analysts said.

 

Chicago Board of Trade December wheat rose 1 cent to US$8.46 per bushel, up 2 1/2 cents on the week. Kansas City Board of Trade December wheat finished 4 cents higher at US$8.29, up 21 1/2 cents on the week. Minneapolis Grain Exchange December wheat climbed 5 1/2 cents to US$7.95, up 21 cents on the week.

 

Trading during the day session was choppy, with prices opening lower as the markets continued to correct following sharp sell-offs Wednesday and Thursday, traders said. Early profit-taking and long liquidation Friday gave way to some short-covering, although prices dipped again late before squeaking out modest gains at the close, they said.

 

Uncertainty about the size of Australia's crop kept some market participants on the sidelines, said Jason Britt, broker and analyst at Central State Commodities. Traders did not want to sell too aggressively until they have a better grasp on production Down Under, he said.

 

The trade will continue to watch forecasts for weather in Australia amid concerns that persistent dryness will continue to diminish yields, analysts said. The crop is in a critical time of development, with the main heading period for the majority of the crop occurring in the next few weeks, DTN Meteorlogix said.

 

In Australia's wheat areas, any showers during the next seven days will be light and mostly confined to Victoria and southern portions of West Australia, according to the Meteorlogix forecast. Further losses to production can be expected under the current deficient rainfall pattern, meteorologists said.

 

"Dry weather should prevail across Australia through at least early next week, and probably longer," T-Storm Weather reported in an update to its daily outlook.

 

The Australian Bureau of Agricultural & Resource Economics, or ABARE, is slated to release its crop estimate Tuesday. U.S. analysts said they expected ABARE to put production at 18 million to 20 million metric tonnes.

 

Britt, for one, said the trade had already priced in a crop of 18 million tonnes. Anything below that level would keep premium in the market, he said.

 

In Argentina, rains this week improved conditions of developing wheat in many areas this week after the crop was hit with some unfavorable dry, cold conditions earlier in the season, the Agriculture Secretariat said in its weekly crop report

 

In the Buenos Aires Province, precipitation this week was very scattered and insufficient in some areas but, in general, "very beneficial for the crop," the secretariat said. Other provinces experienced similar conditions. Farmers had planted 98% of the 2007-08 wheat crop as of Sept. 13, one percentage point behind last year's pace, according to the Secretariat. The Secretariat forecasts 2007-08 wheat planting of 5.5 million hectares.

 

Looking at technical charts, wheat still looks solid, despite heavy sell-off Wednesday and Thursday, said Arlan Suderman, Farm Futures analyst. From the all-time highs set in overnight trade Wednesday of US$9.1125 a bushel for the most-active Chicago Board of Trade December contract to Thursday's settlement, the contract lost 66.25 cents.

 

The next significant level of support for CBOT December wheat to test is around US$8.15, 30 cents below the contract's close Thursday.

 

"We could go down quite a bit and still not do a significant damage to the charts," Suderman said.

 

In other news, CBOT September wheat Friday went off the board up 12 1/2 cents at US$8.38.

 

 

Kansas City Board of Trade

 

KCBT wheat futures chopped around in relatively light volume, traders said. The market was due to bounce a bit higher after the steep losses in the previous two day sessions, he said.

 

Although the market struggled, the recovery showed that the setbacks Wednesday and Thursday were part of a temporary correction, the trader said. Price direction Monday will depend on how much rain falls in Australia during the weekend, he said.

 

 

Minneapolis Grain Exchange

 

Short-covering gave MGE wheat futures a boost, although many traders seemed to be taking a step back after the pullbacks Wednesday and Thursday, a MGE floor trader said.

 

High futures prices will likely spur producers to plant more wheat around the world, which could lead to weaker prices, said Erica Peterson, North Dakota Wheat Commission marketing specialist. However, there's a possibility prices will hold up if the trade continues to see strong demand, production problems or continuously declining stocks, she said in a newsletter issued Friday.

 

"Right now it's anybody's guess," Peterson said about where the market will go in the future.

 

In other news, high international wheat prices and strong prices offered by the Canadian Wheat Board are creating increased competition for domestic ethanol plants, which are also in the market for wheat. One example is Husky Energy's (HSE.T) Lloydminster, Saskatchewan, facility, the plant's marketing coordinator said.