September 30, 2006

 

US Wheat Review on Friday: Mostly lower but impressive weekly gains

 

 

U.S. wheat futures closed mostly lower Friday, pressured by a slightly bearish crop report and commodity funds dressing up portfolios at the end of the month and the quarter, sources said.

 

For the week, however, wheat futures rallied impressively on prospects of shrinking global supplies and on funds adding long positions.

 

Basis December futures contracts Friday, Chicago Board of Trade wheat settled 2 1/2 cents higher at US$4.43, Kansas City Board of Trade was up 1/2 cent to US$4.96 and the Minneapolis Grain Exchange fell 4 cents to US$4.68 3/4 a bushel.

 

The day began on a slightly bearish note with the release of the USDA's grain production and quarterly stocks reports, which analysts said were neutral to slightly bearish for the market. The government took its 2006-07 all-wheat production estimate up by 11 million bushels from August to 1.812 billion. It also estimated wheat stocks as of Sept. 1 a bit higher than anticipated at 1.743 billion bushels but were within the range of estimates.

 

While the report was slightly negative for the U.S. market, the focus is elsewhere, according to Shawn McCambridge, senior grains analyst at Prudential Financial in Chicago.

 

Traders are setting their sights on global wheat supplies, with well-documented crop problems in Australia and South America due to drought, and also expected lower E.U. production.

 

"The report was slightly negative for the market, but we're really not focusing on the U.S. numbers for the most part - we're looking at world numbers right now," McCambridge said.

 

On Thursday, AWB Ltd. slashed up to one-third of its Australian crop estimate, pegging 2006-07 production at 12 million to 15 million metric tonnes, from 18 million to 20 million tonnes previously.

 

Significant cuts are also expected to Brazil's and Argentina's crops.

 

While export demand for U.S. wheat has been slower than bulls would like to see, there is likely a fair amount of uncovered demand that could materialize from Iraq and possibly Egypt, according to McCambridge, though prices will have to come down to attract that business.

 

The combination of bullish world news and fund movement took CBOT prices sharply higher for the week.

 

CBOT December gained 24 cents a bushel from last Friday, KCBT rose 14 1/2 cents and the MGE gained 7 3/4 cents.

 

As of 1:30 p.m. EDT at the CBOT, funds had purchased an estimated 4,500 wheat contracts.

 

Citigroup Global Markets bought 2,000 December, ABN Amro bought 1,000 December, FCStonnee bought 1,000 December and 500 March, while Man Financial and UBS each bought 500 December.

 

Tenco sold 1,000 December, J.P. Morgan sold a net 500 December and Fimat sold a net 200 December.

 

Rand Financial spread 1,500 July/March contracts.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat futures closed near steady and prices traded on both sides of unchanged during the session. End-of-month and end-of-quarter window dressing was also a factor in the market, traders said.

 

December was held to an inside day on the technical charts, and its ability to close above the US$4.94 100-day moving average is expected to be constructive for bulls. The market is approaching overbought conditions, however, a trader said.

 

In early trade, Man Financial bought a net 300 December and a net 200 July, while UBS sold 300 December and 300 March.

 

Man Financial and FCStonnee were active on the spreads.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE wheat futures close lower following the generally weaker trend in Chicago and Kansas City near the end of the day.

 

December topped out at US$4.76, equaling Thursday's high and creating a potential triple-top resistance area near US$4.76-77, with 100-day moving average resistance above the market near US$4.77.