September 29, 2006

 

US Wheat Review on Thursday: CBOT hits 4-mo high; Global crop shrinks

 

 

Soft red winter wheat futures at the Chicago Board of Trade shot to four-month highs Thursday, fueled by speculative and commercial buying on news that global supplies continue to shrink due to drought in parts of the world.

 

In response, CBOT December wheat hit an intraday high of US$4.48 - the contract's strongest price since it traded to US$4.56 on May 30.

 

Basis December contracts, CBOT settled 21 1/4 cents higher at US$4.45 1/2, hard red winter wheat at the Kansas City Board of Trade rose 16 1/2 cents to US$4.95 1/2 and hard red spring futures at the Minneapolis Grain Exchange gained 13 1/4 cents to US$4.72 3/4 a bushel.

 

"We are tightening up the world supply of wheat," says Sid Love of Kropf & Love Consulting in Overland Park, Kan., explaining the rally.

 

A bullish crop estimate from AWB Ltd. slashed up to one-third of the Australian crop this year due to adverse weather, pegging 2006-07 wheat production at 12 million to 15 million metric tonnes, from a previous estimate of 18-20 million tonnes. Australia and South America are both suffered from drought conditions this year.

 

A combination of drought and frost in Brazil's Parana state has cut the wheat crop by 45% to 1.2 million tonnes, from a previous estimate of 2.2 million, a local farm group said Thursday. Parana is Brazil's No. 1 wheat producer.

 

The International Grains Council lowered global wheat production by 5 million metric tonnes to 588 million. Also, E.U. soft wheat production was scaled back by 5.5% from last year to 108.1 million tonnes, according to a farm lobby, who cited lower acres and yields.

 

The combined news cemented ideas that global wheat production will be lower than previously thought. This will likely bolster U.S. exports in the future, which continue to lag last year's levels, sources said.

 

But U.S. production could quickly rebound next year if weather patterns change, "and you could end up with a pretty good crop in North America," Love said.

 

He also expects to see a "big increase" in the Canadian wheat crop next year.

 

Weekly export sales were a net 408,400 tonnes, 21% below the previous week but within trade expectations for 350,000-500,000 tonnes. Total export commitments for 2006-07 are 10.145 million tonnes, down from 13.260 million at this time last year.

 

At the CBOT, Merrill Lynch bought 2,000 December contracts, while ADM, FCStonnee, Calyon Financial and Man Financial each bought 1,000 December. Rosenthal-Collins bought 800 December.

 

Citigroup sold 2,500 December, Fimat sold a net 300 December, J.P. Morgan sold 500 December and Term Commodities sold 400 December.

 

Funds at the CBOT bought an estimated 15,000 wheat contracts.

 

Traders now prepare for Friday's release of USDA's small grains summary and quarterly stocks reports.

 

They peg all-wheat production at an average 1.792 billion bushels, down 9 million bushels from the USDA's 1.801 billion estimate made in August.

 

Wheat stocks as of Sept. 1 are expected to total 1.711 billion bushels on average, down from 1.923 billion as of Sept. 1, 2005.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT December wheat settled at its highest price in seven weeks at US$4.95 1/2, after setting an intraday high of US$5 a bushel on the rally.

 

Wheat prices were bolstered by the sharp gains in Chicago and the bullish fundamental news.

 

Man Financial bought a net 700 December and 300 March, Fimat bought a net 700 December and 200 March, J.P. Morgan bought 1,000 July and 500 December, General Mills bought 500 December, Frontier bought a net 200 December, Prudential Financial bought 600 December and 500 July and UBS bought 500 December.

 

FCStonnee sold 700 December, Fimat sold 500 July and UBS sold 500 March and 500 July.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE December futures shot higher in tandem with the gains at the CBOT and KCBT. The contract settled at its highest prices in three weeks and made an intraday high of US$4.76 a bushel.

 

Traders are watching for any changes to the spring wheat production estimate on Friday, after drought gripped parts of the northern Plains this year. However, there was talk during the harvest that yields were better than expected.

 

On average, analysts surveyed peg spring wheat production at 462 million bushels, down slightly from 464 million in the USDA's August estimate but down sharply from 504 million produced last year.