October 17, 2006

 

US Wheat Review on Monday: Late fund buying leads to higher close

 

 

After a day of mostly quiet trading, heavy fund buying at the Chicago Board of Trade on Monday shoved U.S. wheat futures higher just before the closing bell, sources said.

 

Citigroup, Fortis and Fimat were among the big buyers of December CBOT wheat, a CBOT floor source said. UBS bought 1,800 December wheat, another CBOT floor source said.

 

CBOT December wheat ended 17 cents higher at US$5.42 1/2 a bushel. December Kansas City Board of Trade December wheat closed 3 higher cents at US$5.46, and Minneapolis Grain Exchange December wheat settled 6 3/4 cents higher at US$5.28 1/2.

 

"Everybody wanted wheat, and there wasn't any," a CBOT floor analyst said.

 

Sources said the late demand for wheat was likely triggered by global supply concerns, particularly over low production estimates caused by a drought in Australia. A grains analyst at Rabobank Australia said Monday that production from Australia's wheat crop likely would not rise above 10 million metric tonnes, an estimate that confirmed previous predictions of low crop output.

 

If production drops to 10 million, it would be down more than 60% from the actual output of 25 million tonnes in last crop year.

 

One market analyst said funds may have been hoping for a price break during the day trading session. When that did not come, they had to buy late, he said.

 

"I think there's a lot of global wheat demand that's steady," the analyst said. "I think that basically the buyer is short and he needs to buy wheat."

 

A floor source said that the late fund buys boosted prices more than they normally would have because the market has lost liquidity during recent volatile trading sessions. He said the liquidity was lost when violent price shifts in wheat drove local traders and others out of the market.

 

"This just goes directly to the amount of general liquidity we've lost," the source said about the late price rally Monday.

 

Earlier in the day session, prices remained modestly lower at all three exchanges.

 

Allen Dever, of Doane Agricultural Services, said he thought prices may have been pressured down by rains in the U.S. Southern Plains. DTN Meteorlogix said recent showers in south Oklahoma and north-central Texas have improved soil moisture conditions for planting and developing wheat.

 

"We got some good rain in the southwest," Dever said. "That would bode well for getting new crop wheat off to a decent start."

 

 

Kansas City Board of Trade

 

A KCBT floor source said prices fell earlier in the session because there was little news. Traders also think the market is overbought, the source said.

 

"We were pretty quiet and choppy today," the source said.

 

The source said KCBT didn't see a big volume late in the day and followed CBOT prices higher.

 

 

Minneapolis Grain Exchange

 

A MGE floor source said that market was a "weak follower" of CBOT prices. He said trading there was also quiet because there was not much news.

 

Asked about the late surge in CBOT Dec wheat prices, he said CBOT is "kind of off there in left field."

 

"Basically it just tells people you don't want to trade these markets anymore because there's no rhyme or reason to it anymore," he said.