October 26, 2006

 

US Wheat Review on Wednesday: Prices close lower in late slide

 

 

U.S. wheat futures ended lower Wednesday after a volatile trading session analysts chalked up to a thin, unpredictable market.

 

Prices headed south after making strong gains earlier in the day with support seen from higher corn prices and fresh news that a drought will slash Australian wheat production, sources said.

 

December Chicago Board of Trade wheat closed 5 3/4 cents down at US$5.16 3/4 per bushel, December Kansas City Board of Trade ended 9 3/4 cents lower at US$5.35 1/2, and December Minneapolis Grain Exchange wheat settled 9 3/4 cents down at US$5.13 1/2.

 

"I can't really pinpoint any reason why all of a sudden the prices turned around and went lower," said Shawn McCambridge, an analyst with Prudential Financial. "That's just the type of market that we're in right now."

 

Trading volume and liquidity were low, making the market more volatile, sources said.

 

Some CBOT floor sources said the downturn started when funds started looking to sell December wheat. Locals followed their lead and tried to liquidate, triggering stops, the sources said.

 

Wheat prices were supported earlier in the day by corn, which established new life-of-contract highs for the second session in a row early, a floor trader said.

 

"Corn is the big influence here," the trader said. "At the end of the day, it just couldn't hold up the other stuff."

 

McCambridge said, however, that wheat seemed to be the leader. He noted that wheat opened substantially higher than opening calls.

 

"Today I just think wheat had a mind of its own," he said.

 

In other news, AWB Ltd., Australia's wheat export monopoly, forecast late Tuesday that a severe drought would cut wheat production to between 9 million metric tonnes and 11 million metric tonnes this crop year. Last year, Australia produced 25 million tonnes.

 

Although other estimates had already pegged production at about 10 million tonnes, sources said the fresh forecast reminded traders about tightened global supplies.

 

The CBOT floor trader said the low close suggested the estimates had been factored into prices.

 

McCambridge added that AWB's new estimates matched "where the trade felt the crop was anyway."

 

"Fundamentally, there's nothing new in the market," he said.

 

On Thursday, the U.S. Department of Agriculture is scheduled to release the weekly export sales report for the week ended Oct. 19. Analysts expect sales between 300,000 metric tonnes and 500,000 tonnes. Sales for the week ended Oct. 12 totaled 445,300 tonnes.

 

 

Kansas City Board of Trade

 

KCBT December wheat hit a new contract high of US$5.56, exceeding the previous high of US$5.55, before turning sharply down. A KCBT floor source said the Australian production estimates were the catalyst for the gains.

 

The source said KCBT followed CBOT prices downward.

 

The new contract high and weaker close is a bearish key reversal on day-only technical charts.

 

 

Minneapolis Grain Exchange

 

CBOT action dictated MGE prices during the day, a MGE floor source said.

 

"Really we just followed Chicago up and down," he said. "It seems like when they go up we are a reluctant follower."

 

The source said that AWB's new production estimate was seen as a bullish "undertonnee" to the market.

 

In other news, spring wheat production in Saskatchewan during the 2006 growing season was estimated at 8.790 million metric tonnes by Sask Ag, slightly above the 10-year average of 8.436 million. Roughly 57% of the crop was expected to rate as No. 1, above the 49% 10-year average, the report stated.

 

Durum production was below the 10-year average, at 2.775 million metric tonnes, due to lower seeded acres, but 60% was expected to grade as No. 1, according to the report.