October 10, 2006
US Wheat Review on Monday: Close at limit-up on Australian news
Amid global supply concerns, U.S. wheat futures Monday climbed to exchange-imposed price ceilings as analysts said short contract holders were scrambling to get out of the market.
Analysts said there also was a pent-up demand for wheat from outlets that delayed placing their orders in hopes of riding out higher prices.
December, March and May Chicago Board of Trade wheat ended limit-up, 30 cents higher, at US$4.94 a bushel, US$5.07 1/2 and US$5.04 1/2, respectively. December and March Kansas City Board of Trade settled limit up at US$5.31 3/4 and US$5.44, respectively. December Minneapolis Grain Exchange Wheat was up 30 cents at US$5.09 3/4.
During frenzied pit trading in Chicago, activity in CBOT's electronically-traded wheat contract was halted at 10:22 a.m. CST in the e-cbot platform as electronic trading surged above the price ceilings. It did not resume for the rest of the day, and a statement from CBOT said all trades that occurred above the daily price limit of US$4.94 would be repriced to that level.
Later in the day, CBOT December wheat made a new contract high over the previous contract high of US$4.87. CBOT led the upside with KCBT and MGE following afterward.
A key catalyst for the rally, analysts said, was news that drought in Australia could drive its wheat production down by almost two-thirds. The Grains Council of Australia said Monday that fields could yield about 10 million metric tonnes, down from 25 million tonnes last crop year.
DTN Meteorologix said any rain in Australia during the next seven days will be scatted thundershowers confined to the western wheat belt.
"It is a full-blown disaster there," said Louise Gartner, an analyst with Spectrum Communications.
A spokeswoman for the Australian government said the country has received applications to import a variety of grains from a number of source countries in the event of a possible domestic shortage.
Gartner added that Australia also may not be able to meet its export commitments. She said Australia may need to buy wheat from the U.S. or Canada to fill its orders.
"You've got pent-up demand," Gartner said. "They're going to have to come to the U.S., Canada or Europe."
Sources said bullish trading also fed off of perceived supply troubles in Ukraine, where grain exports have ground to a halt. The Ukraine Grain Association said Monday that no export licenses had been issued since the government began requiring them Oct. 3.
Roy Huckabay, executive vice president of The Linn Group, noted that short contract holders were scrambling to get out of the market.
"People who are short need to get out, and there's nothing there on the other side," Huckabay said.
At midday, one CBOT floor source said there was a pool of 300 unfilled wheat orders because of the price cap. Huckabay, meanwhile, said his firm traded December wheat at a synthetic price 30 cents above the daily, exchange-imposed limit.
In CBOT pit trades, Man Financial bought 2,500 December wheat and Fimat bought 3,000 December wheat. Funds bought 5,000. Calyon, meanwhile, sold 7,000 December.
KANSAS CITY BOARD OF TRADE
KCBT ended sharply higher in what one analyst referred to as a "perfect storm" of rally conditions. He cited the drought in Australia and the challenges in Ukraine. He added that Morocco over the weekend said it bought 117,000 metric tonnes of E.U. soft wheat for delivery before the end of December.
"There's a combination of export business, the ongoing weather concerns and then maybe constricting flow continuing out of the Black Sea," he said.
MINNEAPOLIS GRAIN EXCHANGE
One Minneapolis analyst said the CBOT wheat futures rally was the main force behind gains at MGE. "Our price activity up here is just following," he said. "It's all Chicago."
