October 4, 2006

 

US Wheat Review on Monday: Fund selling, Argentine rains hit prices

 

 

Light fund selling, rainy weather in dry wheat regions in Argentina and disappointment on a sale of wheat to Iraq pressured U.S. wheat futures Tuesday.

 

Floor sources said volume at the major futures exchanges was light. At the Chicago Board of Trade December wheat slid 6 1/2 cents to US$4.39 1/2 a bushel. Kansas City Board of Trade December fell 6 1/4 cents to US$4.91 3/4 and Minneapolis Grain Exchange December dropped 4 1/2 cents to US$4.70.

 

Analysts said the biggest reason for losses in wheat stemmed from rainy weather in Argentina. In fact, the market started on the downside, and held the losses all session long. Heavy rains fell Monday and more rains were forecast for Tuesday and into Wednesday.

 

DTN Meteorologix said more showers move into the country into Wednesday. Wheat areas of western and southern Argentina will have up to three-quarters of an inch of rainfall, while another one to 1 1/2 inches of rain is headed for Santa Fe and northern Buenos Aires. The firm said wheat in northern La Pampa and Cordoba provinces will have the potential for improving conditions.

 

"They had some really good rains in Argentina," said one veteran CBOT floor source. "Plus, some weather forecasters, like Meteorologix, are calling for rains in Australia next Tuesday, but that's a long way away. Still, it gave funds a reason to sell."

 

The weather firm said long-range forecast suggests a chance for showers in northern New South Wales and southern Queensland Oct. 10.

 

Floor sources said liquidation was a factor in the session, particularly after last week's gains. "The market was due for a correction," the floor source said.

 

He also mentioned losses in crude oil and gold futures. Additionally, the U.S. dollar was firmer, which lent modest pressure.

 

At the New York Mercantile Exchange, crude oil prices tumbled. November crude oil fell US$2.35 a barrel to US$58.68. At 2 p.m. CDT, CBOT gold prices were down US$23.60 to US$579.80 an ounce.

 

Losses in wheat were felt in soybeans and corn, but wheat was the downside leader, especially since that market has been on a solid upswing.

 

European cash wheat prices were mostly steady, while French and U.K. wheat futures were weaker, mimicking losses in Chicago.

 

Light pressure in wheat might have come from the CBOT raising minimum margins for wheat, upping it to US$1,080 from US$945 effective Tuesday. Maintenance and hedge margins were also raised.

 

Buyers included Calyon, O'Connor and Citigroup each buying 500 December; J.P. Morgan buying 600 December; UBS buying 300 December and scattered buying. Sellers included Tenco selling 700 December and Rand selling 500 December.

 

 

Kansas City Board of Trade

 

Prices at the KCBT pulled back from the recent rally, eliminating the strength seen when December KCBT moved to mid-August highs earlier this week.

 

"Today was more or less a 'Turnaround Tuesday' trade where the market took back all the prices. We hit some sell stops and that helped to exaggerate some of our losses," said a cash-connected trader.

 

He noted the daily export sale announced by U.S. Department of Agriculture for 200,000 metric tonnes of hard red winter wheat sold to Iraq for the 2006-07 marketing year was labeled a disappointment as the trade was looking for something larger.

 

The market rallied last week on fund buying, but without visible export demand, wheat futures can't hold at the higher levels and was vulnerable to Tuesday's break, the cash-connected trader said.

 

 

Minneapolis Grain Exchange

 

Futures at the MGE also fell, erasing gains from Monday in light volume. The market followed action seen in the KCBT and CBOT.