October 12, 2006

 

US Wheat Review on Wednesday: Rallies again to price limits

 

 

U.S. wheat futures Wednesday rallied to daily, exchange-imposed price ceilings in several contracts on concerns that a drought would prevent Australia from meeting export commitments, analysts said.

 

News that Brazil, which also has seen lower-than-expected production, may look to buy wheat from the U.S. and Canada also supported the market, analysts said.

 

The Chicago Board of Trade led the upside. CBOT December and March wheat ended limit-up, or 30 cents higher, at US$5.31 a bushel and US$5.44, respectively. December Kansas City Board of Trade wheat ended 27 1/4 cents higher at US$5.40 1/2, and KCBT March wheat ended 30 cents up at US$5.50. December Minneapolis Grain Exchange wheat ended 27 1/4 cents up at US$5.29 1/4, and MGE March wheat ended 26 cents higher at US$5.44.

 

"The wheat market is at that perfect-storm type of scenario," said John Kleist of Top Third Ag Marketing.

 

Australian wheat growers said this week that production this crop year would only be a fraction of last crop year because of a damaging drought. News reports further said that Australia's AWB Ltd. had suspended exports on its east coast.

 

Sources said the parched conditions and CBOT floor rumors that Australia would need to import wheat fed bullish trading.

 

Private weather firm DTN Meteorlogix said there is no sign of relief for Australia's dryness in the near future. The weather firm predicted no significant rainfall in any of the major growing areas during the next five to seven days.

 

Meanwhile, forecasts were bearish for the U.S. Southern Plains, where Meteorlogix said "timely and beneficial rains" would fall for the emerging hard red winter wheat crop.

 

In Argentina, Meteorlogix said widespread showers and thunderstorms of .50-1.50 inches were expected Friday and Saturday throughout the central grain belt on Friday and Saturday.

 

Nevertheless, a U.S. Department of Agriculture attache report from Tuesday said reduction in Argentina's wheat production this year could lead Brazil to import wheat from the U.S. and Canada. Normally, Brazil sources most of its needs from Argentina. Estimates of how much wheat the countries will need from outside sources range from 1 million metric tonne to 2.5 million tonnes, according to the attache.

 

Brazil's government crop science institute, Embrapa, said after the cold snap in wheat regions during late September, Brazil would have to increase its wheat imports.

 

"Argentina and Australia are having a real hard time right now," said Phil Storer, director of trading at Dillon Gage.

 

Storer said the support for the wheat rally was "as real as it gets."

 

"So many times, when you hear news that so-and-so is having a drought, it's almost like a drought broke out overnight," Storer said. "In this case, there really is a drought, and it really is a bad one."

 

The USDA is slated to release its October crop report at 7:30 a.m. CDT (1230 GMT) Thursday. Traders expect USDA to slightly increase ending stocks, and the market will be keen to see where the government pegs Australian wheat production. Weekly export sales, normally due out on Thursday, are delayed until Friday due to the Columbus Day holiday Monday.

 

CBOT, meanwhile, raised its minimum margins for wheat in changes effective Thursday. The new price margins are US$1,688 initial, US$1,250 maintain, and US$1,250 hedge. The old price margins were US$1,350 initial, US$1,000 maintain and US$1,000 hedge.

 

Kleist said the changes would "put even more pressure on the shorts."

 

In other news, the Ukrainian government Wednesday approved a decision to impose quotas on grain imports. At the same time, the government has not issued export licenses since it began requiring them on wheat Oct. 3.

 

Ukraine's agriculture ministry said two million metric tonnes of contracted export grain are building up at the country's sea ports and at rail depots because exporters can't obtain the licenses.

 

 

Kansas City Board of Trade

 

KCBT December and March wheat touched limit-up, although December wheat trimmed gains before the close. A KCBT floor source said prices there were following CBOT prices.

 

"Chicago led it off," he said. "If we were left to our own accord, we would probably have been left unchanged. Chicago is in a pure panic on the Dec spreads."

 

The KCBT source said there were fewer than 100 in pool for limit-up March wheat. He said that prices did not trade synthetically above the limit.

 

 

Minneapolis Grain Exchange

 

MGE December and March wheat hit contract highs before trimming gains. An MGE floor source said MGE prices were following Chicago.