October 9, 2007

 

US Wheat Review on Monday: Limit down in correction to high prices

 

 

U.S. wheat futures finished limit down in the front three months Monday at all three exchanges in a setback from sky-high prices, traders said.

 

Chicago Board of Trade December wheat ended limit down, or 30 cents lower, at US$8.60 per bushel. Kansas City Board of Trade December wheat closed down 30 cents at US$8.64 1/2, and Minneapolis Grain Exchange December wheat settled down 30 cents at US$8.60 3/4.

 

There was little fresh bullish news, and the markets were due to correct after recent rallies, traders said. There are ideas that market tops may be in place following moves to all-time highs, they said.

 

Heavy long liquidation and profit-taking drove prices sharply lower at the opening, traders said. Nearby contracts locked at limit down, or 30 cents lower, early in the day session.

 

"Everybody tried to get out the door at the same time, and it wasn't big enough," said Jason Britt, broker and analyst at Central State Commodities.

 

CBOT December wheat traded synthetically at about US$8.44 at the close, a floor trader said. Commodity funds sold an estimated 2,000 contracts.

 

CBOT and KCBT December wheat dropped below their 20-day moving averages. That is technically bearish for the markets, an analyst said.

 

CBOT December wheat last week closed 49 cents lower on the week, which was a signal that the market may have exhausted its upside potential, Britt said. There are also bearish fears that importers may cancel purchases of U.S. wheat, he said.

 

As of Sept. 27, outstanding sales that have yet to be shipped totaled almost 12 million metric tonnes, according to the U.S. Department of Agriculture. That is up 262% from a year ago.

 

A firmer U.S. dollar added to the weaker tonnee for CBOT grains, analysts said. The stronger dollar is seen as bearish because it can discourage foreign buyers from importing U.S. commodities.

 

 

Kansas City Board of Trade

 

KCBT wheat futures slumped under long liquidation and profit-taking, traders said. The CBOT led the charge to limit down, with KCBT and MGE following, a KCBT floor trader said.

 

The market is overbought and overdue for a correction, the floor trader said. There were no new supportive developments to spark a rally, he said.

 

Rain in the U.S. central and southern Plains has helped recharge soil moisture, particularly in western Kansas, according to DTN Meteorlogix. The moisture will boost prospects for winter wheat, the firm said.

 

 

Minneapolis Grain Exchange

 

MGE was the last of the three markets to touch limit down. The market has been gaining on CBOT lately amid solid demand and concerns about low ending stocks of spring wheat, traded at the MGE.

 

The steep losses at the other exchanges dragged the MGE limit down, traders said. Rains in Australia added somewhat of a bearish backdrop to the declines, but concerns about yield loss there due to drought are "stale," an analyst said.

 

Some light showers fell in Western Australia, but not enough to make a difference in a wheat crop that has been short of rain all winter, Meteorlogix said. This week is projected to be drier than recent weeks.

 

"Harvest is approaching and even a downpour at this point would probably not make a difference," Meteorlogix said.

 

Indeed, Australia's wheat crop had probably stabilized to the point where yield isn't going to change too dramatically anymore, regardless of the weather, Britt said.

 

"Is the crop going to go up much? Probably not," he said. "Is the crop going to drop below (2006 output of) 10 million tonnes? I'd say probably not."