October 16, 2007

 

US Wheat Review on Monday: Slips on profit-taking, unwinding spreads

 

 

U.S. wheat futures tumbled limit-down at all three exchanges Monday before trimming losses and closing sharply lower on profit-taking and ideas the markets have peaked, analysts said.

 

It was the second consecutive day session in which contracts fell limit- down, or 30 cents lower, before finishing with steep losses.

 

Chicago Board of Trade December wheat closed down 24 cents at US$8.33 1/2 per bushel. Kansas City Board of Trade December wheat sank 24 3/4 cents at US$8.43, and Minneapolis Grain Exchange December wheat dropped 20 cents to US$8.50.

 

Traders took money off the table amid a lack of fresh bullish news and ideas the markets have topped out after rallying to all-time highs, traders said. CBOT December wheat reached a record high of US$9.61 3/4 on Sept. 28 but has since slumped more than US$1.25.

 

CBOT December and March wheat temporarily traded limit-down during the session.

 

One warning sign that the markets have peaked is consistent old crop/new crop bear spreading, said Jim Bower, owner and president of Bower Trading Inc. Participants in the spread trades sold December wheat and bought July wheat, which represents the new crop.

 

Bower said he expected the bear spreading to continue in the near term. CBOT July wheat closed 9 1/2 cents lower at US$6.71.

 

The bear spreading "means the market is tiring," Bower said. "The market acts like it has made a top."

 

Commodity funds sold an estimated 3,000 contracts at the CBOT. Unwinding of long wheat/short corn spreads also weighed on nearby wheat futures, traders said.

 

Wheat's losses Monday followed a heavy sell-off Friday. Prices fell Friday amid ideas the markets had already priced in data from a new U.S. Department of Agriculture supply and demand report.

 

In other happenings Monday, weekly U.S. wheat export inspections were within trade estimates and seen as neutral for the markets, a CBOT floor trader said. The trade needs some unexpected news to spark a rally, he said.

 

The USDA said 34.445 million bushels of wheat were inspected for export in the week ended Oct. 11, while analysts had expected inspections of 32 million to 37 million. For the marketing year to date, export inspections total 525.943 million bushels, compared to 321.466 million at the same time last year, according to the USDA.

 

Liffe's European wheat futures, meanwhile, ended lower in a quiet market filled with reluctant buyers and sellers. Paris November milling wheat ended down EUR1.50, or 0.6%, to close at EUR244.75 a metric tonne with 1,632 lots moved.

 

 

Kansas City Board of Trade

 

KCBT December and March wheat touched limit-down. The markets opened stronger, but the downside seemed to be the path of least resistance, a KCBT floor trader said.

 

Weekend rains in the U.S. central and southern Plains also put some pressure on the wheat markets, Bower said. The moisture is bearish because it gives traders more confidence that germination and development will go well, he said.

 

"There was a little bit of concern about the germination situation," Bower said.

 

Another storm system may bring "significant rain" across the eastern half of the Plains on Wednesday, T-Storm Weather said in a forecast. However, western areas near the Kansas-Colorado border and southward will probably continue to miss heaviest totals, the private weather firm said.

 

The USDA is slated to release an updated crop progress report, including data on U.S. winter wheat plantings, at 4 p.m. EDT Monday. In its most recent report, the agency said seeding was 58% completed as of Oct. 7, behind the five-year average of 66%.

 

 

Minneapolis Grain Exchange

 

MGE December and March wheat touched limit-down. Profit-taking and technical selling weighed on the market, a MGE floor trader said.

 

Still, commercial demand for hard red spring wheat, traded at the MGE, has been strong lately and should continue to underpin prices, the floor trader said.

 

In other news, rains in Australia's southern New South Wales this week will arrive too late to reverse major yield losses from drought, Cropcast Agricultural Weather said in a forecast. However, precipitation in the area later this month could delay early cutting activity, according to the private weather firm.

 

"As feared a new problem occurred in Queensland last week, where early harvesting was delayed due to heavy rains," Cropcast said. "The area should dry out this week, easing damage concerns but more harvest delays are possible in NSW in week two."