October 20, 2007

 

US Wheat Review on Friday: Rallies limit up in rebound from losses

 

 

U.S. wheat futures ended limit up Friday on short-covering and as the markets bounced back after recent setbacks from all-time highs, analysts said.

 

Chicago Board of Trade December wheat finished limit up, or 30 cents higher, at US$8.55 1/2 per bushel. Kansas City Board of Trade December wheat climbed 30 cents to US$8.69, and Minneapolis Grain Exchange December wheat soared 30 cents to US$8.69 3/4.

 

CBOT December wheat had a significant retreat in the weeks after hitting a record high of US$9.61 3/4 on Sept. 28 and was due for a rebound, said Bill Nelson, associate vice president of AG Edward & Sons in St. Louis. At one point this week, the contract was down more than US$1.50 from its high.

 

"I think it's kind of a situation where the market has come down so much over the past few weeks that it's ready for a rally," Nelson said. "It looks like the market's ready to kind of reverse course for a little bit."

 

There also was some support from talk about bullish demand expectations, traders said. Reports indicated that Russia, an aggressive exporter on the world market, was considering raising its export tariff on wheat, which encouraged ideas that more importers will buy from the U.S.

 

Russia has already approved a 10% duty on wheat exports to take effect next month but may hike it to 30%, according to reports. Traders focused on the potential increase amid a lack of other fresh news in the market.

 

However, the adjustment would not make a big difference in world wheat sales as the lower tariff is enough to effectively shut off Russia's export program, said Roy Huckabay, analyst with the Linn Group in Chicago. Tim Hannagan, analyst with Alaron Trading in Chicago, also said the increase would not shift world business.

 

The Russians are "going to sell whatever they can to meet their export commitments," Hannagan said. "They want to be part of the export community. I really don't think (a tariff increase) is a big deal."

 

Chicago-based AgResource Company said in a research note that E.U. sources were doubtful Russia would even raise the export duty.

 

"Russia has more than enough wheat to meet the needs of the domestic and export markets," the firm said.

 

There also was some lingering bullish chatter about a sale of U.S. wheat to Egypt on Thursday, traders said. The deal was a sign to some traders that the recent pullback in prices had made U.S. wheat more competitive on the world market.

 

Commodity funds bought an estimated 4,000 contracts at the CBOT. In CBOT pit trades, MF Global and Goldenberg Hehmeyer each bought 400 December.

 

 

Kansas City Board of Trade

 

Talk about the possible increase of the Russian export duty sparked the rally at the KCBT, a floor trader said. The trade is still trying to figure out how it is going to replace wheat from Australia's crop, which was ravaged by drought for the second consecutive year, he said.

 

In the drought-parched wheat areas of Australia, there is a chance for showers developing through Victoria and New South Wales during the first few days of next week, DTN Meteorlogix said. This may help ease stress to any late-filling wheat but it is probably too late to significantly change crop yield forecasts, according to the weather firm.

 

 

Minneapolis Grain Exchange

 

Short-covering and a bounce from the recent losses pushed MGE wheat futures higher, a MGE floor trader said. The market also followed gains at the CBOT, he said.

 

Looking forward, the wheat markets may stay stronger in the near-term as the markets continue to recover, Nelson said. The longer-term outlook is bearish as the rally to record highs is expected to spur on more wheat plantings around the world, he said.