October 26, 2007
US Wheat Review on Thursday: Nearby contracts fall on technical selling
Nearby U.S. wheat futures closed lower Thursday on bearish technical momentum and long liquidation, with a lack of fresh fundamental news to spark fresh buying, analysts said.
New-crop/old-crop spreading also weighed on the nearby contracts while boosting deferred months, traders added.
Chicago Board of Trade December wheat closed down 9 cents at US$8.02 per bushel. Kansas City Board of Trade December wheat closed down 4 3/4 cents at US$8.25, and Minneapolis Grain Exchange December wheat finished down 4 cents at US$8.22.
CBOT December wheat closed limit down, 30 cents lower, in the previous two day sessions and is in a near-term technical downtrend, analysts said. The next level of psychological support for the contract lies around US$7.50, the previous record high for a nearby contract set in March 1996, they said.
"The technical side of the market is driving it," one analyst said.
There was some lingering pressure from news Wednesday that Russia did not plan to raise its wheat export tariff right away, traders said. Russia's announcement that it would keep its tariff at 10% was the "kiss of death for the near term," said Howard Tyllas, a registered commodity trading adviser and veteran CBOT floor broker.
There were ideas that a higher tariff would oust Russia as a competitor for wheat sales on the world market and allow the U.S. to do more business. Russia is known as an aggressive exporter.
There was little other fresh news to feed the bulls Thursday, and the path of least resistance is to the downside, traders said. Trading was choppy, with the market temporarily rising on spillover support from firmer CBOT corn and soybeans, they said.
The International Grains Council forecast a 3% rise in 2008-09 world wheat plantings to 220 million hectares. Significant increases are likely in North America, the European Union and the Commonwealth of Independent States, which includes countries of the former Soviet Union, the IGC said.
Producers around the world are expected to plant more wheat following rallies to all-time highs this fall. With that in mind, some industry members viewed the IGC's projection as being on the low end of expectations.
The 3% projected planting increase "seems like a pretty conservative scenario on worldwide expansion," said Jerry Gidel, analyst with North America Risk Management Services.
In Australia, southeastern wheat provinces had rainfall of up to one inch Wednesday, with the heaviest amounts seen in northern New South Wales, DTN Meteorlogix said. The rain is too late for the wheat crop, however, and may delay harvest.
Commodity funds sold an estimated 3,000 contracts at the CBOT.
Kansas City Board of Trade
Follow-through selling from disappointment over news that Russia won't immediately raise its export tariff pressured prices, a floor trader said. However, it now appears that story has run its course, he said.
Looking ahead, there are ideas that weekly lows have been set, the trader said. Trading will likely remain range-bound and sideways Friday after a volatile week, he said.
Looking at the weather, the Meteorlogix forecast calls for mainly dry conditions in the U.S. for the next 10 days, except for light rains in the Delta and Ohio Valley. The dry weather will allow winter wheat planting to make good progress, the weather firm said.
However, the dryness will result in soil moisture drawdown in the Plains, Meteorlogix said. The drawdown trend "bears monitoring as wheat goes through its pre-dormancy growth stage," the firm said.
Minneapolis Grain Exchange
Volume at MGE was relatively light, with some traders seen stepping back a bit after recent volatility, an MGE floor trader said. The market traded flat a few times during the day session as prices tried to rebound from the recent declines, he said.
The CBOT was the leader of the day, the trader said. MGE wheat futures were watching CBOT wheat, corn and soybeans, he said.
