September 22, 2007

 

US Wheat Review on Friday: Rallies hard on demand, technical buying

 

 

U.S. wheat futures Friday surged in a thin volume trade, with Chicago Board of Trade December wheat briefly touching limit up on strong export sales and technical buying, analysts said.

 

Chicago Board of Trade December wheat closed 24 cents higher at US$8.74 per bushel, up 28 cents on the week. Kansas City Board of Trade December wheat climbed 24 cents to US$8.58, up 29 cents on the week. Minneapolis Grain Exchange December wheat soared 23 cents to US$8.26, up 31 cents on the week.

 

CBOT December wheat hit limit up, or 30 cents higher, in pit trading amid light technical buying, traders said. Some buy stops were triggered as prices rose, they said.

 

In electronic trading, CBOT December wheat came within 1/4 cent of trading limit up but did not hit the daily price ceiling. That indicated there may have been some local buying supporting the rally, said Tom Leffler, owner of Leffler Commodities.

 

Trading volume was thin, so small buy orders shoved prices several cents higher, CBOT floor traders said. There was "a lot of air" in the market," one trader said.

 

Commodity funds bought an estimated 3,000 contracts at the CBOT.

 

"We found some technicals in there that helped push this market up," Leffler said.

 

Prior to the opening, the U.S. Department of Agriculture said Iraq had bought 700,000 metric tonnes of U.S. hard red winter wheat and Algeria had bought another 100,000 tonnes. The Iraqi sale is for delivery in the 2007-08 marketing year, while half of the Algerian sale is for delivery in 2007-08 and half is for delivery in 2008-09, the USDA said.

 

The export sales illustrated that demand for U.S. wheat remains strong, analysts said. The news followed the release of bigger-than-expected weekly export sales data Thursday.

 

In related news, Russia indicated that it would likely announce next week plans to limit its wheat exports. The government is considering an export tax in response to rising grain prices.

 

It wouldn't be surprising "at all" for Russia to put a duty on exports, a CBOT floor trader said. It seems as though markets have already priced in the adjustment, he said.

 

Looking forward, the trade will continue to monitor weather conditions in the Southern Hemisphere, Leffler said. Australian wheat fields are still suffering from a lack of rain, although Argentina's crop is looking fairly good, he said.

 

Australia's wheat areas were generally dry Thursday, with only scattered light showers and little significant rainfall, DTN Meteorlogix said. The firm's outlook calls for mostly dry conditions during the weekend, followed by a very scattered shower pattern across the country during next week.

 

In general, there is no change to the overall dry weather pattern in the major Australia wheat areas expected during the next 10 days, Meteorlogix said. Crop losses will increase as the crop enters its heading stage during the next few weeks, according to the firm.

 

If Australia receives some good moisture, it could "make a lot of difference with what's going on in the short term" in the U.S. wheat markets, Leffler said. Rains would bearish if it looked as though they would give Australia's crop a boost.

 

Argentina's major wheat areas had a few showers Thursday. The Meteorlogix outlook calls for dry conditions or just a few light showers during the next week.

 

Argentine farmers wrapped up 2007-08 wheat planting this week, seeding 5.44 million hectares with the grain, the Agriculture Secretariat said in its weekly crop report Friday. Crop conditions are generally good following a second weak of rainfall, although some spots of severe drought remain in the west of Santa Fe province, the Secretariat said.

 

Kansas City Board of Trade

 

The HRW wheat sales to Iraq and Algeria boosted KCBT wheat futures early, a floor trader said. HRW wheat is traded at the KCBT.

 

There are ongoing concerns about tight global ending stocks amid the persistent dryness in Australia, the KCBT floor trader said. Nervousness about shrinking supplies is still seen as supportive and is responsible for the market's volatility, he said.

 

Minneapolis Grain Exchange

 

MGE wheat bounced on the strong export sales, with traders reluctant to sell too aggressively going into the weekend, a MGE floor trader said. The fundamentals of the market are still the same - world supplies are tight and the pace of business is strong, he said.

 

Traders will look at the USDA's weekly export inspections report Monday as the trade continues to watch for signs that the market is rationing demand, the MGE trader said. There was some inter-market trading between all the exchanges, he said.