October 5, 2007

 

US Wheat Review on Thursday: Nearby contracts tumble on profit-taking

 

 

U.S. wheat futures closed mixed Thursday, with nearby contracts tumbling on profit-taking and a lack of fresh, bullish news, analysts said.

 

Chicago Board of Trade December wheat fell 21 cents to US$9.06 per bushel. Kansas City Board of Trade December wheat ended down 17 cents at US$9.10, and Minneapolis Grain Exchange December wheat slipped 5 3/4 cents to US$9.03 1/2.

 

Amid the absence of any unexpected, new developments, traders took money off the table as prices are already at lofty levels, analysts said.

 

In its weekly export sales report, the U.S. Department of Agriculture said sales for the week ended Sept. 27 were 1.6 million metric tonnes. At 6% above the previous week and 10% above the prior four-week average, the sales were considered to be strong, traders said.

 

However, the export business was not seen as particularly bullish because sales were within analysts' expectations, analysts said. The trade also already knew about a fair amount of the sales from previous announcements, said Shawn McCambridge, analyst for Prudential Financial in Chicago.

 

"There's strong demand but we've been trading that for the last month," McCambridge said. "We've had a really strong rally, and I think we're going to see some profit-taking where there's an absence of news."

 

U.S. wheat futures recently climbed to all-time highs at the CBOT, KCBT and MGE as unfavorable weather in growing areas around the world lowered supplies and sent export business to the U.S. Statistics Canada modestly increased its production estimate Thursday, but the change was seen as neutral because it didn't alter the tight world supply situation, traders said.

 

The trade also continues to worry about yield losses due to dryness in Australia, although that has been a supportive factor for several weeks, analysts said. There does not appear to be much change in the forecast for the country's wheat belt, with little rain expected, meteorologists said.

 

"Drought conditions are still affecting wheat in Australia," DTN Meteorlogix said. "Some rain is possible in the West Australia wheat belt next week, but is not expected to do much to reverse recent drops in yield potential."

 

Deferred-month contracts ended firmer as the markets worked to ensure that producers expand new-crop wheat plantings, said Joe Victor, vice president of marketing for Allendale. There is "very real potential" for 2008 U.S. wheat plantings to increase four to six million more acres from about 60 million acres in 2007, Allendale said in a research note.

 

CBOT July wheat, which represents the new crop, closed up 6 1/2 cents at US$6.79.

 

 

Kansas City Board of Trade

 

KCBT December wheat ended at a premium to CBOT December wheat due to strong demand for hard red winter wheat, floor traders said. HRW wheat, used to make bread, is traded at the KCBT.

 

Of the weekly export sales, 1 million tonnes were HRW wheat and 67,500 were soft red winter wheat, traded at the CBOT. Sales of hard red spring wheat, traded at the MGE, were 308,400 tonnes, while white winter wheat sales were 162,300 tonnes and durum sales were 21,300 tonnes.

 

HRW wheat sales have been booming for the last several weeks, and the nearby KCBT December wheat contract "has been needing to catch up on the Chicago" contract, a KCBT floor trader said.

 

In other news, the KCBT said it was raising minimum margins for wheat futures contracts due to increased market volatility. The increases, which take effect at the close of business Thursday, were seen as bearish, an analyst said.

 

KCBT July wheat ended up 2 1/4 cents at US$6.87.

 

 

Minneapolis Grain Exchange

  

MGE wheat futures were firmer for much of the day session but slipped late as nearby CBOT and KCBT futures dropped sharply, traders said. Some local buying helped boost prices early on, a MGE floor trader said.

 

Statistics Canada estimated production at 20.6 million tonnes, up from its previous forecast of 20.3 million tonnes. Pre-report trade estimates had pegged the crop at 18.40 million to 21.00 million tonnes.

 

Although the updated forecast was seen to be mostly neutral, the projection gave some support to MGE wheat futures because it confirmed spring wheat supplies are low, McCambridge said.