September 18, 2007

 

US Wheat Review on Monday: Soars on Australia dryness, demand

 

 

Nearby U.S. wheat futures closed at or near limit up Monday on forecasts for continued dryness in Australia and amid expectations for a reduced crop forecast for Down Under, traders said.

 

Chicago Board of Trade December wheat rose 29 cents to US$8.75 per bushel. Kansas City Board of Trade December wheat climbed 29 cents to US$8.58, and Minneapolis Grain Exchange December wheat soared 30 cents to US$8.25.

 

The next 10 days offer an increased possibility of rain to portions of New South Wales and Victoria, but Australia's wheat fields should nevertheless remain parched, Cropcast Agricultural Weather said in a forecast. Although plants would feel short-term benefits from the rainfall, the soil would still be significantly short of moisture as the precipitation would "not really cut into the long-term deficit," the private weather firm said.

 

A much heavier rainfall is needed soon to limit crop declines and yield loss in Australia, Cropcast said. Conditions in some wheat-growing areas - including most of New South Wales, Southern Australia and Victoria - have worsened recently from the lack of any significant rainfall after mostly dry weather during the weekend, the firm said.

 

The only rainfall during the weekend occurred in light showers in western portions of West Australia and over Victoria province in the southeast, DTN Meteorlogix said.

 

Looking ahead, the Australian Bureau of Agricultural & Resource Economics, or ABARE, is scheduled to release an updated crop forecast before the start of Tuesday's day session. The projection will give the trade a marking point for the crop amid varied private estimates, traders said.

 

The trade has already dialed in an estimate of 18 million tonnes, an analyst said. Anything below 18 million would be seen as bullish, he added.

 

The U.S. Department of Agriculture last week lowered its forecast for the Australian crop to 21 million tonnes from 23 million.

 

"That will be awful important out there," Larry Glenn, owner of Glenn Commodities, said of the ABARE estimate.

 

Along with fears over shrinking supplies, prices felt a boost from bullish expectations that demand will remain strong, Glenn said. Pakistan said over the weekend it plans to import 1 million metric tonnes of wheat as a reserve buffer stock to check soaring domestic prices of flour.

 

The import move appeared aimed at checking wheat hoarding, which had created a shortage of supply in the domestic market and caused prices to soar. The government said it had taken serious note of the reported shortage and high prices of flour in various parts of the country, despite abundant wheat stocks following the bumper crop this year.

 

"Even though there wasn't anything posted out there, it's still the prospect" of sales that boosted U.S. wheat futures, Glenn said. "Traders are thinking something is going to get put on the board."

 

The USDA said weekly U.S. wheat export inspections as of Sept. 13 totaled 29.7 million bushels, within trade estimates of 21 million to 35 million. For the marketing year to date, inspections were 371.1 million, up from 244.2 million last year.

 

Deferred U.S. wheat contracts also ended in positive territory. However, expectations that soaring U.S. wheat futures prices will spur more worldwide wheat plantings weighed on the back-month contracts, analysts said.

 

CBOT July 2008 wheat closed up 8 1/2 cents at US$5.96.

 

Commodity funds bought an estimated 2,000 contracts at the CBOT.

 

 

Kansas City Board of Trade

 

KCBT wheat futures rallied on concerns about Australia's crop, with traders seen as being nervous about the upcoming ABARE estimate, a floor trader said. Market participants are watching the weather forecasts, although the ABARE estimate will have to be shocking, or there could be some "buy the rumor, sell the fact" activity Tuesday, he said.

 

There was floor talk that ABARE may project Australia's crop at 16 million to 19 million metric tonnes, the KCBT trader said. Favorable moisture in Argentina was bearish compared to the dryness in Australia, the floor trader said.

 

Light to moderate rain was seen in Argentina's central grain belt during the past weekend, Meteorlogix said. Additional rains are expected through Tuesday, followed by drier weather Wednesday through Sunday, the weather firm said.

 

Soil moisture has improved significantly across the main growing areas of central Argentina during the past week. This will improve conditions for emerging and developing wheat, Meteorlogix said.

 

 

Minneapolis Grain Exchange

 

Supply concerns regarding Australia were supplemented by a decline in France's soft wheat crop forecast, a MGE floor trader said.

 

The French Ministry for Agriculture and Fisheries trimmed its soft wheat output estimate to 31.7 million tonnes, down 1.2 million tonnes from the August estimate. The reduction was expected but its confirmation was still seen as bullish for the market, an analyst said.

 

"It doesn't take much of bullish news out there to drive" U.S. wheat futures higher, Glenn said. "You take bits and pieces, and it all adds up."