October 13, 2006

 

US Wheat Review on Thursday: Prices down after rallies earlier in week

 

 

Despite new government data lowering global wheat production and ending stocks, U.S. wheat futures fell Thursday because the bullish figures had already been factored into prices, sources said.

 

Australian growers said earlier in the week they would produce much less wheat this crop year because of a severe drought. The news helped push U.S. wheat prices limit-up, or 30 cents higher, on Monday and Wednesday but could not support prices Thursday, sources said.

 

December Chicago Board of Trade wheat ended 15 1/2 cents lower at US$5.15 1/2 a bushel, December Kansas City Board of Trade wheat settled 7 3/4 cents lower at US$5.32 3/4, and December Minneapolis Grain Exchange wheat finished 13 1/2 cents down at US$5.15 3/4.

 

"It was kind of 'Buy the rumor, sell the news,' " said Dan Zwicker of AgriVisor Services Inc. "Once you get the news that you needed, you can't maintain the strength that you needed and you just fall back."

 

In its October crop production report, the U.S. Department of Agriculture cut its estimate of global wheat stocks to 119.3 million metric tonnes, the lowest stocks figure in 25 years. The estimate is a 7.1-million-tonne decline from the USDA's September estimate and down sharply from the 147.2-million-tonne wheat carryout in 2005-06.

 

The USDA said U.S. wheat ending stocks for were seen at 418 million bushels, under the trade estimate of 437 million and under September figure of 429 million.

 

Wheat production in Australia was the focus of many traders. The USDA lowered Australian 2006-07 wheat production to 11 million tonnes from its 19.5- million-tonne estimate in September.

 

Some sources said they expected the USDA's estimate to be around that level.

 

"I think we had everybody all dressed up for the party and there's really little surprise," said Phil Roach, a commodities broker.

 

Roach called the USDA report "overly anticipated" and said prices leading up to its release were "fairly extreme." He added that some funds took profits on long positions and may have pressured prices.

 

The CBOT December-July wheat spread pulled back slightly Thursday, closing at 69 1/2 cents, premium December, from 87 cents on Wednesday.

 

Analysts noted CBOT December wheat was short-term overbought and that there was some profit taking.

 

"It was ripe for a period of setback or consolidation," Zwicker said.

 

In other news, the European Union, meanwhile, granted 128,225 tonnes of wheat at its intervention resale tender. All of the wheat was from Poland and granted at EUR150 a metric tonne.

 

The E.U. also granted licenses to export 3,200 metric tonnes of wheat from intervention stores. The intervention wheat licenses were all from Hungary and granted at EUR134.92/tonne.

 

Looking ahead to Friday, USDA is set to release weekly export sales. Estimates for sales range from 350,000 to 850,000 metric tonnes.

 

 

Kansas City Board of Trade

 

A KCBT floor source agreed the USDA data had already been factored into the market and added that it helped trading "return to fundamentals." He noted that there was some profit taking.

 

 

Minneapolis Grain Exchange

 

An MGE source said he was not surprised to see wheat prices pull back.

 

"We were long overdue for some short of correction if you look at any of the technical indicators," he said. "I thought it would be more violent than this."

 

The source said MGE saw some commercial spreading and a little fund buying.

 

Meanwhile, Saskatchewan Wheat Pool Inc.'s fourth-quarter earnings declined due to a number of one-time items, the company said. Revenue rose, however, on strong sales in each of its three business segments.

 

The Regina, Sask. agribusiness said its fourth-quarter earnings were CUS$13.5 million or 15 Canadian cents a share compared with CUS$19.5 million or 44 Canadian cents a year earlier.