October 4, 2007

 

US Wheat Review on Wednesday: Bounces higher amid strong demand ideas

 

 

U.S. wheat futures closed higher Wednesday in a recovery from Tuesday's sharp sell-off and with support from strong demand, analysts said.

 

Chicago Board of Trade December wheat finished 4 1/2 cents higher at US$9.27 per bushel. Kansas City Board of Trade December wheat rose 7 3/4 cents to US$9.27, and Minneapolis Grain Exchange December wheat jumped 12 3/4 cents to US$9.09 1/4.

 

Wheat futures bounced after closing limit down in front-month contracts at all three U.S. exchanges Tuesday. Tuesday's steep losses were a technical correction, and wheat's fundamental factors remain bullish, traders said.

 

U.S. wheat futures recently have rallied to all-time highs on tight world supplies and strong demand.

 

"We were in the tank yesterday," Sid Love, analyst with Kropf & Love Consulting, said about the wheat markets. "At this kind of an altitude, you can expect to see that kind of thing happen."

 

Commodity funds bought an estimated 3,000 contracts Wedneday at the CBOT.

 

Demand continues to look solid, with the U.S. Department of Agriculture announcing that unknown destinations had bought 290,000 metric tonnes of U.S. wheat. Of the total, 116,000 tonnes were hard red spring wheat and 174,000 tonnes were hard red winter wheat.

 

Weekly wheat export sales data from the USDA are due out Thursday at 8:30 a.m. EDT. For the week ended Sept. 27, analysts estimate wheat export sales will be 1.2 to 1.9 million metric tonnes.

 

A good chunk of the sales are already known to the trade. For example, the USDA has previously said 450,000 tonnes were sold to Algeria.

 

Moving forward, the trade will also keep its eyes on forecasts for Australia, analysts said. Wheat fields Down Under have suffered from a lack of rainfall for weeks, but crop losses could be limited to about half the country's losses in 2006 if the next few weeks are wetter than they were a year ago, Cropcast said.

 

Cropcast's outlook for Western Australia during the next two weeks includes some wetter conditions than experienced in October 2006. Compared to a year ago, conditions in Western Australia in September ranged from slightly drier in interior areas to a bit wetter nearer to the coast, according to the weather firm.

 

"Needless to say, eastern areas therefore appear to be on track for a very poor crop again this season if rains continue to fail during the next few weeks," Cropcast said. "However, the interesting fact for 2006 is that the substantial dryness did not develop until October (the key heading period)."

 

T-Storm Weather said in an update to its daily forecast that data from weather models suggests that rain chances are increasing for Western Australia for late in the weekend. However, the firm said it was still "far from convinced that a beneficial event will occur." A separate system of thunderstorms may affect eastern wheat areas early next week, T-Storm said.

 

"A significant event is not imminent and drought-busting event is not likely," the firm said.

 

The chairman of the international unit of AWB Ltd. pegged Australia's crop at 12-14 million metric tonnes, below the Australian Bureau of Agricultural and Resource Economics' September estimate of 15.5 million tonnes. Australia produced about 9.9 million metric tonnes of wheat last year, according to the USDA.

 

 

Kansas City Board of Trade

 

Solid export business continues to underpin KCBT wheat futures, traders said. Of the 174,000 tonnes of HRW wheat sold to unknown destinations, 58,000 tonnes were for delivery in 2007-08 and 116,000 tonnes for delivery in 2008-09. HRW wheat is traded at the KCBT.

 

Technical buying after Tuesday's limit-down close also offered support, a KCBT floor trader said. Activity remained volatile, with some market participants seen stepping back after the big price swings, he said.

 

In other news, the Meteorlogix forecast calls for generally dry weather across major U.S. winter wheat regions through the end of the week. Winter wheat planting was 42% complete as of Sunday, down from 49% last year and the five-year average of 51%.

 

 

Minneapolis Grain Exchange

  

Prices rose on news of the export sales to unknown destinations and ideas that MGE wheat futures are underpriced compared to the CBOT, a MGE floor trader said. There was been steady demand lately for HRS wheat, traded at the MGE, and the USDA last week cut its estimate for 2007-08 U.S. spring wheat production.

 

MGE wheat futures are expected to continue gaining on the CBOT, he said.

 

In other news, Statistics Canada on Thursday is slated to release an updated wheat crop estimate. Trade estimates peg all-wheat production at 18.4 to 21 million metric tonnes.