September 22, 2006

 

US Wheat Review on Thursday: Funds rally market to 2-week highs

 

 

Speculative interest across the Chicago Board of Trade grain floor rallied wheat futures to two-week highs and also boosted the corn and soybean markets, sources said Thursday.

 

Basis December contracts, CBOT rose 13 3/4 cents to US$4.21 1/2, Kansas City Board of Trade added 8 cents to US$4.84 1/4 and the Minneapolis Grain Exchange rose 9 3/4 cents to US$4.65 1/2 a bushel.

 

Rainy weather producing harvest delays was supportive news for beans and corn, while wheat garnered spillover fund buying. By 1:30 p.m. EDT, funds had bought 5,000 wheat contracts, 21,000 corn and 3,500 soybean contracts.

 

Gains in the energy markets were also likely supportive for grains and oilseeds and provided at least part of the speculative interest, said Bill Nelson, associate vice president at A.G. Edwards in St. Louis.

 

Higher energy prices tend to spark interest in alternative fuels such as ethanol and biodiesel, which are made from corn and soybeans, respectively. Crude oil prices have declined sharply in recent weeks, however.

 

Export news also was friendly for wheat as weekly sales of 515,500 metric tonnes topped trade estimates, though demand at this time of year should be much higher, according to Nelson. Just after the harvest, August and September are historically the best months for export sales, and that has not been the case this year.

 

While export sales were a supportive influence Thursday, high prices overall have cut off export demand and sales remain well below last year's pace.

 

Traders continue to look to Iraq for fresh export business, and an Iraqi wheat trade delegation in the U.S. is fueling that speculation. Iraq has historically been a large buyer of U.S. and Australian wheat, so traders hope the U.S. will receive a significant portion of any new tender.

 

Bullish traders are also looking to expected significant crop losses in Australia and Argentina as supportive price influences due to extremely dry weather.

 

In export news, Japan bought 95,000 metric tonnes of milling wheat Thursday, which included 25,000 tonnes of U.S. hard red winter and 25,000 tonnes of U.S. dark northern spring wheat. The rest of the tender included 20,000 tonnes Canadian and 25,000 tonnes of Australian wheat. Shipment is scheduled for Nov. 1-30.

 

At the CBOT, Man Financial bought 1,000 December, Citigroup Global Markets bought 800 December, Tenco bought a net 500 December and Prudential Financial bought 400 December. Fimat sold a net 500 December and J.P. Morgan sold 300 December.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT December wheat futures closed higher, tracking the gains in Chicago on a combination of local, commercial and fund buying, a broker said.

 

December rose to its highest level in over two weeks by hitting US$4.86 1/2 and settled at its strongest price since Sept. 1. The contract ripped through its 20- and 40-day moving averages on the rally.

 

In the U.S., showers over the next few days in the central and southern Plains will delay hard red winter wheat plantings, but most traders view the rains as beneficial for the new crop and a welcome change from drought earlier in the year.

 

Farmers will likely plant an additional 2 million to 3 million acres of wheat this year with the higher prices and more favorable soil conditions, Nelson said. The U.S. Department of Agriculture estimates planted acres for 2006-07 at 58 million.

 

Fimat and J.P. Morgan were early buyers, while UBS sold. Spread trading was active.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE wheat futures followed the rallies in Chicago and Kansas City, hitting two-week highs.

 

December wheat made a US$4.66 1/4 session high and also traveled through key chart points on the rally. The session high coincides with 40-day moving average resistance.