September 29, 2007

 

US Wheat Review on Friday: Hits record highs for 3rd straight day

 

 

U.S. wheat futures rallied Friday to fresh all-time highs at all three exchanges for the third consecutive day on bullish data from the U.S. Department of Agriculture, analysts said.

 

Some contracts traded limit up during the session, but late profit-taking and market-on-close sell orders trimmed gains, particularly at the Chicago Board of Trade and Kansas City Board of Trade, traders said. Minneapolis Grain Exchange wheat futures held up better due to a significant cut in the USDA's estimate for spring wheat production, a MGE floor trader added.

 

Nearby CBOT December wheat set a new high of US$9.61 3/4 per bushel before closing up 6 cents at US$9.39. CBOT March wheat set a new high of US$9.66 1/2 before closing up 10 1/2 cents at US$9.47.

 

KCBT December wheat hit a fresh high of US$9.49 1/2 and closed up 9 3/4 cents at US$9.29 1/4.

 

MGE December wheat climbed to a new high of US$9.14 1/4 before closing up 21 1/2 cents at US$9.05 3/4. MGE March wheat set a new high of US$9.18 1/4 before closing up 22 1/2 cents at US$9.10 3/4.

 

The USDA cut its forecast for total 2007-08 U.S. wheat production to 2.067 billion bushels from its August prediction of 2.114 billion bushels. That was below the lowest estimate in a pre-report Dow Jones Newswires survey of analysts.

 

The latest forecast for all winter wheat production, also released Friday in the USDA's Small Grains report, was for 1.516 billion bushels, down from 1.538 billion bushels in August. Soft red winter wheat production was put at 358 million bushels, down from 360 million last month.

 

The USDA pegged quarterly U.S. wheat stocks at 1.717 billion bushels as of Sept. 1, down 2% from a year ago. Analysts surveyed by Dow Jones Newswires before the report was issued generally expected stocks to be up from last year.

 

"The report was friendly," said Tom Leffler, owner of Leffler Commodities. "There was no doubt about it. The stocks came in lower than we were expecting. The production came in lower."

 

The USDA's lower-than-expected stocks estimate suggests the U.S. fed much more wheat this summer than the trade previously suspected, Farm Future analyst Arlan Suderman said. Analysts had said they expected feed use to be down due to sky-high prices.

 

The cuts in production and quarterly stocks spooked the markets because global wheat stocks were already pegged at a three-decade low, analysts said. World wheat supplies could tighten even more if extreme dryness continues in Australia, traders said.

 

The DTN Meteorlogix forecast calls for dry weather with only a few light showers in Australia's wheat areas during the next seven days.

 

Unfavorable weather earlier this year caused crop losses in other key wheat producing countries, including Ukraine, and made the U.S. a main source for countries looking to import high-quality milling wheat. Strong demand, along with the ongoing concerns about Australia's production potential, drove U.S. wheat futures to record highs on Wednesday and Thursday.

 

"This market just continues to build off of all the fundamental bullish news out there," Leffler said.

 

Next week, traders will continue to watch forecasts for signs of rain in Australia and wait for fresh demand news, an analyst said.

 

Commodity funds bought an estimated 4,000 contracts at the CBOT. In pit trades, MF Global bought 500 December, while RJ O'Brien sold 1,000 December.

 

 

Kansas City Board of Trade

 

KCBT March wheat hit limit up, or 30 cents higher, during the session on the bullish USDA report and fears about shrinking global supplies, traders said. The contract closed up 24 1/2 cents at US$9.30 3/4.

 

Production of hard red winter wheat, traded at the KCBT, was pegged at 962 million bushels, up from 948 million last month.

 

Overall, conditions at this time are favorable for winter wheat planting in the U.S. southern Plains, Delta and eastern Midwest, Meteorlogix said.

 

However, above-normal temperatures and below-normal rainfall during the next seven days will diminish soil moisture for emergence and development of the crop, the weather firm said.

 

 

Minneapolis Grain Exchange

 

MGE December, March, May and July wheat all touched limit up during the day session, with the May and July contracts closing at the daily, exchange-imposed ceiling. MGE May wheat ended 30 cents higher at US$8.74 1/2, and MGE July wheat finished 30 cents higher at US$7.93.

 

The USDA projected other spring wheat projection at 479 million bushels, down from 500 million in August. The durum wheat crop was seen at 72 million bushels, down from 77 million last month.

 

"This report was about Minneapolis spring wheat," a MGE floor trader said. "We lost 21 million bushels."

 

The cut in spring wheat production will put the stocks-to-use ratio to a "puny" level, the trader said. There are also reports that, in order to take advantage of record prices, farmers are going to plant winter wheat on acres that are traditionally used to grow spring wheat, he said.