October 3, 2007

 

US Wheat Review on Tuesday: Ends limit Ddown in profit-taking setback

 

 

U.S. wheat futures settled limit down at all three exchanges Tuesday in a profit-taking setback from recent rallies to all-time highs, traders said.

 

Chicago Board of Trade December wheat tumbled 30 cents to US$9.22 1/2 a bushel, the contract's lowest close since Wednesday. Kansas City Board of Trade December wheat dove 30 cents to US$9.19 1/4, the contract's lowest close since Wednesday. Minneapolis Grain Exchange December wheat slid 30 cents to US$8.96 1/2, the contract's lowest close since Thursday.

 

CBOT wheat futures ended limit down in the December 2007 contract through the December 2008 contract. The markets had room to pull back after climbing to unprecedented prices in recent days, traders said.

 

Fund selling, weakness in other commodity markets and a bounce in the U.S. dollar added further pressure to the markets, traders said. Metals fell during the day session, and CBOT corn also ended limit down in several contract months.

 

Commodity funds sold an estimated 5,000 wheat contracts at the CBOT. In pit trades, Fimat sold 1,300 December and Rand Financial sold 1,200 December.

 

CBOT December wheat was synthetically trading around US$9.15 a bushel at the close, a floor trader said.

 

The sell-off was a reaction to the "early stages to intermediate stages of a bubble in grain prices," said Jim Bower, owner and president of Bower Trading Inc. CBOT wheat futures last week set highs Wednesday, Thursday and Friday, and closed solidly firmer Monday.

 

"We were escalating at too fast of a pace, and the market was terribly overbought," Bower said.

 

There was some bearish influence from news that Egypt's state-owned General Authority for Supply Commodities bought 80,000 metric tonnes of Russian wheat in a tender and none from the U.S., traders said. The U.S. was "snubbed," one analyst said.

 

However, the sale wasn't completely bearish, as it showed Egypt still needs wheat, which is a good sign for bulls, an analyst said. The amount of grain purchases from Russia also wasn't all that big, he said.

 

There was little other fresh news out beside the results of Egypt's tender, and the bulls need to be fed every day, a CBOT floor trader said. Despite the heavy losses, no serious chart damage was done because prices were already at such lofty levels, he said.

 

Persistent dryness in Australia also continues to be supportive for U.S. wheat futures, traders said. The "iron grip of drought" remains solidly in place over Australia's wheat areas, according to DTN Meteorlogix.

 

High winds have exacerbated the lack of rainfall in recent days by sapping soil moisture, Meteorlogix said. The private weather firm's outlook suggests there is a chance for showers in northern New South Wales and southern Queensland early next week, but rain is no longer expected for the West Australia region.

 

 

Kansas City Board of Trade

 

KCBT December, March and May wheat finished limit down. KCBT and MGE wheat futures opened the day session as scheduled at 10:30 a.m. EDT, but the CBOT didn't begin trading until 11:30 a.m. EDT due to technical issues with a routing system.

 

KCBT and MGE stumbled before CBOT began its day session, but the sell-off "really picked up pace" once CBOT trading started, a KCBT floor trader said. It seemed as though selling had "built up" at the CBOT before the delayed opening, an analyst said.

 

U.S. winter wheat plantings remained behind schedule as of Sunday, with hard red winter wheat states in the Southern Plains seen to be lagging the most, the U.S. Department of Agriculture said. Winter wheat planting was 42% complete as of Sunday, down from 49% last year and below the five-year average of 51%, according to the USDA.

 

Rainfall during the next week to 10 days will continue to dodge the western Plains winter wheat areas, Meteorlogix said.

 

"This trend bears close watching for its potential to continue reducing soil moisture for early growth and development of winter wheat in the region," the firm said.

 

 

Minneapolis Grain Exchange

 

MGE December wheat was the exchange's only contract to close 30 cents lower. MGE wheat seemed "more reluctant" to trade limit down amid following a bullish reduction in the USDA's forecast for 2007-08 U.S. spring wheat production last week, a floor trader said.

 

In other news, 2007-08 initial payments for western Canadian wheat and durum will increase effective Thursday, according to the Canadian Wheat Board. The CWB said it also has submitted new recommendations for a further increase to the initial payments given the dramatic increase in market prices since Aug. 15, when the last adjustment recommendation was submitted to the federal government.

 

The Oct. 4 increase in initial payments for wheat will be CUS$28.50 a metric tonne. In the case of milling durum, the increase will be CUS$43.50 a tonne.