September 21, 2007

 

US Wheat Review on Thursday: Ends up; solid demand supports turnaround

 

 

U.S. wheat futures ended firmer Thursday, turning around from losses during the previous two day sessions, with gains buoyed by strong export demand, analysts said.

 

Chicago Board of Trade December wheat rose 5 cents to US$8.50 per bushel. Kansas City Board of Trade December wheat finished 5 1/2 cents higher at US$8.34, and Minneapolis Grain Exchange December wheat closed 4 3/4 cents higher at US$8.03.

 

Wheat futures slumped Tuesday and Wednesday on profit-taking. Higher-than-expected weekly U.S. export sales gave prices an early boost Thursday and gave the markets strength in a turnaround from the recent consolidation, analysts said.

 

The U.S. Department of Agriculture said export sales of 2007-08 and 2008-09 wheat for the week ended Sept. 13 totaled 1.6 million metric tonnes, above trade expectations of 600,000 to 1.5 million tonnes. The steady pace of business was impressive as the sales period covered a rally last week to fresh all-time highs, traders said.

 

Although the trade hasn't seen news of any massive sales for awhile, demand remains solid amid tight world supplies, a CBOT floor trader said. North African countries, in particular, continue to be active buyers, he said.

 

For the 2007-08 crop, sales of 1.44 metric tonnes were 33% below the previous week but 12% over the prior four-week average, according to the USDA. Top buyers included Nigeria, which took 182,400 tonnes, Algeria, which bought 115,200 tonnes, and unknown destinations, which bought 368,100 tonnes.

 

Sales of 160,200 tonnes for delivery in 2008-09 were primarily for Kenya, which bought 130,000 tonnes.

 

Weakness in the U.S. dollar was seen as another supportive factor for grains, an analyst said. Declines in the strength of the dollar make U.S. commodities more attractive to foreign buyers, he said.

 

Although the solid export sales were bullish, nearby wheat futures temporarily slipped during the day session on light profit-taking, traders said. Recent weakness in the face of supportive news is encouraging the view that wheat futures have reached a market top, an analyst said.

 

Canada and Australia will be harvesting soon, so the U.S. is no longer seen as the world's sole supplier of high-quality milling wheat, said Tim Hannagan, analyst with Alaron.

 

"The old news that demand is good is no longer a fundamental that can hold gains," he said.

 

In other news, the Russian government said it might impose an export duty of 10% on grain next week, when the government plans to announce the conditions of grain interventions on the domestic market, according to a report. Russia is considering an export duty, in part to control rising grain prices.

 

Traders had previously talked about the possibility of an export tax or suspension of exports, so Russia's latest statements were not seen as overly bullish, a CBOT floor trader said. However, the renewed chatter likely offered light support as it brought the possibility of an export duty back into market participants' minds, he said.

 

Hannagan, on the other hand, said an export duty in Russia would not have an impact on U.S. markets.

 

"I think what they've had to sell, they've sold," he said of Russia.

 

Looking forward, profit-taking and long liquidation will likely continue to weigh on wheat in the near-term amid sentiment that highs are in the past, Hannagan said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures led the upside on strength from the solid weekly export sales report, a floor trader said. Despite lofty prices, it doesn't look as though the market is rationing demand yet, he said.

 

Of 2007-08 weekly export sales totaling 1.4 million metric tonnes, 576,900 tonnes were hard red winter wheat, traded at the KCBT, according to the USDA. Export sales of soft red winter wheat, traded at the CBOT, totaled 224,800 tonnes, while export sales of hard red spring wheat, traded at the MGE, totaled 388,100 tonnes, the USDA said.

 

Weather forecasts for HRW wheat areas of the U.S. central and southern Plains look generally favorable for planting, according to DTN Meteorlogix. The outlook calls for mostly dry weather through the coming weekend, although more rain would benefit newly-planted wheat in some southwest areas, the private firm said.

 

 

Minneapolis Grain Exchange

 

Floor trading was choppy at the MGE as the bullish export news came out while the market seemed to be in a consolidative trend, a floor trader said. Still, the strong demand and big sales of HRS wheat were supportive, he said.

 

There is bearish sentiment that most major wheat importing nations are well-covered for the near-term, analysts said. Some major importers, such as Egypt, are expected to stay absent from the market due to the Muslim holy month of Ramadan, they said.