October 11, 2007

 

US Wheat Review on Wednesday: Ends up in bounce; short-covering seen

 

 

Short-covering and positioning ahead of a U.S. government crop report pulled U.S. wheat futures higher Wednesday, traders and analysts said.

 

Chicago Board of Trade December wheat rose 7 1/2 cents to US$8.53 per bushel. Kansas City Board of Trade December wheat finished 12 cents higher at US$8.56 1/4, and Minneapolis Grain Exchange December wheat closed up 9 cents at US$8.60 3/4.

 

The markets were due for a bounce after closing lower in the previous four day sessions, traders said. There are expectations the U.S. Department of Agriculture will cut its forecast for U.S. and world wheat ending stocks in its October supply and demand report, due out at 8:30 a.m. EDT Friday.

 

"You're seeing a lot of positioning and posturing" in the markets ahead of the report, an analyst said.

 

The average of analysts' pre-report estimates for 2007-08 U.S. wheat ending stocks is 304 million bushels, down from the USDA's September estimate of 362 million, according to a Dow Jones Newswires survey of 13 analysts. Last year, ending stocks were 456 million bushels.

 

U.S. carryout is expected to fall due to the steady pace of export demand, analysts said. Smaller U.S. supplies and a cut in Australia's crop due to drought should also tighten global stocks, they said.

 

The trade was disappointed Wednesday that Egypt's General Authority for Supply Commodities bought 190,000 metric tonnes of Russian wheat in a tender and none from the U.S. The news was bearish for nearby futures as it indicated that U.S. wheat is too expensive to compete on the world market, an analyst said.

 

It was the second time in two weeks that Egypt snubbed the U.S. in favor of Russian wheat. GASC on Oct. 2 said it bought 80,000 tonnes of Russian wheat and none from the U.S.

 

Still, positioning ahead of the report and some spillover support from firmer CBOT soybean futures helped wheat finish in positive territory. CBOT soybeans rose on short-covering and fears the USDA will cut its estimate for harvested acreage in Friday's report, traders said.

 

The USDA in the report is expected to lower its estimate for Australia's crop from the 21 million tonnes forecast last month due to extreme dryness, analysts said. Weather models suggest a thunderstorm may be developing along the Queensland-New South Wales border and that the storm may develop into a larger complex, T-Storm Weather said in an update to its daily forecast.

 

Some decent totals may fall, but the rain event is along the northern fringe of the main wheat belt and a substantial moisture increase remains unlikely for a majority of wheat, T-Storm said. Also, it seems that it is probably too late for wet weather to substantially improve the condition of the crop, a CBOT floor trader said.

 

In Argentina, southern wheat areas got rain Tuesday, which is beneficial for developing wheat. Northern areas may get some rain over the next few days, possibly causing some delay in the planting of wheat, DTN Meteorlogix said.

 

China's wheat crop will benefit from recent rains in the North China Plains, the firm said. Projected rain in Ukraine and Russia also will boost wheat crops, according to Meteorlogix.

 

 

Kansas City Board of Trade

 

The USDA announced sales of 300,000 tonnes of hard red winter wheat to Iraq, but the news was partly priced in by expectations for the business last week, an analyst said. HRW wheat is traded at the KCBT.

 

KCBT December wheat continues to gain on CBOT December wheat as sales of soft red winter wheat, traded at the CBOT, have been "virtually nonexistent" for the last several weeks, an analyst said. There were some traders who bought KCBT wheat futures and sold CBOT in inter-market spreads, a KCBT floor trader added.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures largely followed activity at the CBOT, a MGE floor trader said. MGE December wheat gained on CBOT December wheat as demand for spring wheat, traded at the MGE, is solid, he said.

 

In Friday's report, the USDA may raise its forecast for Canada's crop to put it more in line with Statistics Canada's most recent estimate. Statistics Canada this month put production at 20.641 million tonnes, and the USDA's September estimate was 20.3 million.