October 5, 2006

 

US Wheat Review on Wednesday: CBT wheat 10-Year high on spec buys, exports

 

 

U.S. wheat futures rallied sharply in Wednesday's trade, as speculative funds embarked on a buying spree that sent nearby Chicago Board of Trade wheat futures markets catapulting to 10-year highs.

 

December CBOT wheat ended 25 1/2 cents higher at US$4.65, December Kansas City Board of Trade wheat settled 12 1/4 cents higher at US$5.04, and December Minneapolis Grain Exchange wheat finished 15 1/2 cents higher at US$4.85 1/2.

 

Export demand is the story that buoyed futures to new highs, with news Egypt's GASC bought 115,000 metric tonnes of U.S. soft red wheat and Iraq purchased 100,000 tonnes of U.S. hard red wheat and optimistic hopes of additional sales giving juice to ignite upside movement, said Bill Nelson, associate vice president with A.G. Edwards and Sons in St. Louis.

 

Speculative traders are buying into the market's long- term bullish fundamental outlooks, with a lot of index and commodity fund capital flowing into wheat futures, Nelson added.

 

Speculative funds bought an estimated 13,000 contracts in CBOT December wheat to help propel it to a new contract high as well as to its highest level since August 1996.

 

Market concerns surrounding tightening global supplies, with Australia's crop suffering from a drought, fueled upside movement previously, but U.S. export demand had been lagging, and once the demand picture brightened with fresh business reported, buyers were ready to pounce on the market, said a CBOT commission house broker.

 

Near-term weather forecasts continue to cast doubt on upside potential for Australia's crop, and with pockets of dryness in parts of the U.S. winter wheat belt delaying some plantings, traders were presented with additional support to aid the bullish price movement, Nelson said.

 

Large options-related buying coupled with the unwinding of long corn/short wheat spreads added fuel to send sellers running for cover, pit traders said.

 

Meanwhile, the DTN Meteorlogix forecast said Southern Plains winter wheat could use more rain for early development of the wheat crop, namely in the southwest areas, but dry weather will continue for the next five to seven days.

 

Australia's wheat region is threatened with additional yield declines if rain doesn't materialize. Long-range charts indicate a chance for scattered thundershowers over New South Wales and southern Queensland on Monday or Tuesday. In Argentina, drier weather will be common through next week following recent rains. The recent and forecast rains are ideal for improving winter wheat, yet northern wheat areas may experience localized flooding, Meteorlogix forecasts.

 

In CBOT pit trades, heavy speculative fund buying was estimated near 25,000 contracts. Fimat bought 1,700 December, with Man Financial, and UBS Securities featured buyers as well. Sellers were scattered among various commission houses, with UBS Securities a featured seller of 1,500 December.

 

 

Kansas City Board Of Trade

 

KCBT wheat futures posted solid gains Wednesday, fueled to a lesser extent than CBOT wheat by demand-related news, and technical strength. News Iraq purchased U.S. hard red winter wheat was a supportive feature, while intermarket spreading managed to limit upside movement, traders said.

 

FCStone, ADM Investor Services and Prudential Financial were featured buyers.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures were followers of the explosive price gains in Chicago. The absence of fresh news involving spring wheat and the lack of technically based action that is seen in Chicago and Kansas City kept the market trailing CBOT and KCBT wheat.

 

Nevertheless, December wheat did manage to match a two-month high.