October 13, 2007

 

US Wheat Review on Friday: Falls hard on unsurprising USDA report

 

 

U.S. wheat futures closed deep in negative territory Friday after some contracts tumbled limit down on a government crop report that failed to offer the markets any bullish surprises, traders and analysts said.

 

Chicago Board of Trade December wheat closed down 25 1/2 cents at US$8.57 1/2, down 32 1/2 cents on the week. Kansas City Board of Trade December wheat sank 18 1/4 cents to US$8.67 3/4, down 26 3/4 cents on the week. Minneapolis Grain Exchange December wheat fell 20 3/4 cents to US$8.70, down 20 3/4 cents on the week.

 

The session was a classic example of "buy the rumor, sell the fact" trading, analysts said.

 

Nearby contracts on Thursday soared limit up, or 30 cents higher, on ideas the U.S. Department of Agriculture would tighten world supplies in its October supply and demand report, released Friday morning. After the report confirmed the expectations, CBOT December wheat hit limit down, and all the markets gave back gains.

 

"I think yesterday's limit-up move probably anticipated even more bullish news than the USDA released," said Dave Marshall, an independent marketing advisor and commodities broker. "We just had so much bullish information already built into the USDA report."

 

The USDA lowered its forecast for 2007-08 U.S. wheat ending stocks to 307 million bushels, down 55 million from September and at the lowest level since 1948-49. The average of analysts' estimates in a Dow Jones Newswires survey was 304 million, although there were whisper estimates that pegged carryout closer to 280 million or 290 million, Marshall said.

 

U.S. ending stocks dropped from last month because of lower production and strong demand, the USDA said. World wheat ending stocks were put at 107 million, down from 112.4 million in September and at the lowest level since 1975-76, according to the USDA.

 

The USDA estimated Australia's crop at 13.5 million tonnes, down sharply from 21 million last month due to drought. The updated projection was seen as neutral and considered a number "people can live with," a CBOT trader said.

 

The Australian Bureau of Agricultural and Resource Economics last month estimated the crop at 15.5 million. Since then, a smattering of private, anecdotal estimates has indicated production could be lower than that.

 

The USDA lowered its estimate for E.U.-27 production to 120.8 million from 121.83 million "based on updated government estimates," the USDA said. Argentina's production was raised 500,000 tonnes to 14.5 million, as timely September rains boosted soil moisture and higher prices encourage more fertilizer usage.

 

FSU-12 production was raised 3.3 million tonnes, mostly reflecting better-than-expected spring wheat yields. Good moisture and generally favorable weather conditions for harvest have boosted production prospects for Kazakhstan and Russia, the USDA said.

 

In other news, the USDA said weekly export sales for the week ended Oct. 4 were a total of 1.343 million metric tonnes, within pre-report trade estimate of 1 million to 1.6 million tonnes. The sales included 934,000 tonnes for delivery in 2007-08 and 409,000 tonnes for delivery in 2008-09.

 

CBOT December wheat's lower close for the week shows the market is trying to find "that next level of stability, of equilibrium" in terms of price after hitting all-time highs last month, an analyst said. Last week, the contract closed down 49 cents on the week.

 

Commodity funds sold an estimated 5,000 contracts at the CBOT. In pit trades, Fimat and Man Financial each sold 500 December.

 

 

Kansas City Board of Trade

 

The USDA report did not contain enough supportive news to feed the bulls, a KCBT floor trader said. Although U.S. ending stocks shrank, some traders were looking for a domestic carryout number below 300 million, he said.

 

"The report was longer-term constructive, but did not reveal any fresh bullish information," Midwest Market Solutions President Brian Hoops said in a market comment. "Fresh bullish news is needed to drive wheat back to the old highs."

 

Hard red winter wheat growing states behind on planting due to dryness may see some favorable precipitation next week, Cropcast Agricultural Weather said in a forecast.

 

The next five days should bring some needed rainfall to northern portions of the winter wheat belt, including western South Dakota, Nebraska and northeastern Colorado. However, western Kansas, the Oklahoma Panhandle and portions of Texas may continue to miss out on moisture, the private weather firm said.

 

The USDA said 58% of the U.S. winter wheat crop was planted as of Sunday, below the five-year average of 66%. Kansas' planting was 56% done, down from the five-average of 68%.

 

The USDA is slated to release updated an crop progress report at 4 p.m. EDT Monday.

 

 

Minneapolis Grain Exchange

 

Of the weekly export sales for delivery in 2007-08, the largest percentage was for hard red spring wheat, traded at the MGE. The sales included 437,300 tonnes of HRS wheat; 188,100 tonnes of soft red winter wheat, traded at the CBOT; and 164,000 tonnes of HRW wheat, traded at the KCBT. There also were sales of 84,400 tonnes of white winter wheat and 60,300 tonnes of durum wheat, according to the USDA.

 

For delivery in 2008-09, 351,000 tonnes were HRW wheat and 58,000 tonnes were HRS wheat. Moving forward, demand will determine future price action of U.S. wheat futures, Marshall said.

 

"We've defined the supply well," Marshall said. "The demand side is looking for surprise. With US$9 wheat, you just have more difficulty trying to find demand surprises."