September 20, 2006

 

US Wheat Review on Tuesday: Higher on bullish Australia crop estimate

 

 

U.S. wheat futures sprouted to one-week highs Tuesday on news that officials slashed Australia's crop estimate by 35% because of dry conditions this year.

 

Wheat prices in Chicago and Kansas City had recently fallen to four-and five-week lows on technical weakness and a lack of significant export business, so the news was all the "spark" bulls needed to push values higher.

 

Basis December futures contracts, CBOT wheat settled 13 1/2 cents higher at US$4.09, Kansas City Board of Trade rose 14 3/4 cents to US$4.80 3/4 and the Minneapolis Grain Exchange added 13 cents to US$4.56 1/2 a bushel.

 

New-crop Australian wheat production is forecast at 16.4 million metric tonnes, from 25.1 million tonnes produced last year, the government's chief commodities forecaster, the Australian Bureau of Agricultural & Resource Economics, said Tuesday. This was far below the 19.5 million tonnes the U.S. Department of Agriculture estimated on Sept. 12.

 

In addition, continued dry weather over the next week is expected to compound problems and have a further detrimental effect on the crop, industry sources said.

 

"The fact that we've got carryover at extremely tight levels in the world and the U.S., and that we've been selling off because of no export business" made the market ripe for a rally, said Luke Schwieterman of Schwieterman Inc. in Garden City, Kan.

 

The news confirms ideas that global stocks, which are already projected at 25-year lows, will only tighten in coming months.

 

Anticipation of fresh export business from Iraq also supported values, with an Iraqi delegation currently in the U.S. on a trade and educational mission.

 

A spokesman for the Kansas Wheat Commission, which is sponsoring part of the delegation's U.S. tour, said the trip was educational but hoped that it would lead to increased export business.

 

"Where there's smoke, there's fire, let's hope" Schwieterman said of the potential for fresh export business.

 

Iraq's trade minister will meet with USDA Secretary Mike Johanns on Monday, then the delegation will travel to Kansas City on Tuesday and hold a press conference at the KCBT, the wheat commission spokesman said.

 

Traders also unwound corn/wheat spreads, which supported wheat prices.

 

Funds at the CBOT were active buyers, purchasing a net 5,000 CBOT contracts by 1:30 p.m. EDT.

 

Fimat bought a net 1,000 December, Man Financial and Rand Financial each bought 800 December, FCStonnee and Prudential Financial each bought 500 December, O'Connor bought 400 December, and Tenco bought a net 300 December.

 

Calyon Financial sold 400 December, Citigroup Global Markets sold 300 July and Rosenthal-Collins sold 300 December 2007.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT December wheat futures climbed to 1 1/2-week highs on the Australian news and as traders unwound some corn/wheat spreads, a broker said.

 

U.S. hard red winter wheat plantings are running a bit behind normal at 19% planted as of Sunday, versus 24% at the same time last year and the 23% five-year average. Seedings are being delayed slightly by rainy weather, which is welcome news to farmers still recovering from drought conditions during the last growing season.

 

Nevertheless, the slower planting pace was considered supportive for prices.

 

Man Financial was an early buyer of 400 July, Fimat bought 200 December, ADM sold 500 December and UBS sold 200 December.

 

Shay Grain spread 400 December/March contracts early at 8 1/4 cents.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE December wheat futures rose to one-week highs, supported by the rallies in Chicago and Kansas City.

 

December hit a session top of US$4.57 and posted its strongest settlement price since Sept. 11, at US$4.56 1/2.