October 27, 2007

 

US Wheat Review on Friday: Ends mostly up; bear spreading featured

 

 

U.S. wheat futures ended mostly higher Friday in a turnaround from recent losses supported by firmer outside markets, traders said.

 

Chicago Board of Trade December wheat closed down 2 cents at US$8.00 per bushel, down 55 1/2 cents on the week. Kansas City Board of Trade December wheat rose 2 1/2 cents to US$8.27 1/2, down 41 1/2 cents on the week. Minneapolis Grain Exchange December wheat finished up 5 cents at US$8.27, down 42 3/4 cents on the week.

 

Active bear spreading at the Chicago Board of Trade and Kansas City Board of Trade weighed on old-crop December wheat and boosted new-crop July contracts, traders said. U.S. wheat futures climbed to new all-time highs earlier this fall, but bear spreading is a "classic sign" a market is running out of steam, an analyst said

 

Stronger outside markets, notably crude oil and gold, provided spillover support for wheat, an analyst said. But the market is still in a near-term technical downtrend, with a downside risk in the area of US$7.50 to US$7.00, he said.

 

A weaker U.S. dollar added to the firmer tonnee because a softer greenback makes U.S. commodities more attractive to foreign importers, traders said.

 

"I think the weaker dollar is supportive to all commodities," said Alan Brugler, president of Brugler Marketing & Management.

 

The wheat markets were due for a bit of a technical recovery after tumbling earlier in the week, an analyst said. The wheat market was in a "very technically oversold" condition, Brugler said.

 

There was little fresh news out to feed the market, traders said. After the close, Egypt's state-owned General Authority for Supply Commodities said it was tendering to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Dec. 1-15, on a free-on-board basis.

 

An Australian government department said production from the wheat crop now being harvested in New South Wales state will fall 19% to 1.7 million metric tonnes from the drought-affected crop of 2.1 million tonnes in 2006. Yield prospects for all crops have continued to deteriorate, with almost no effective rainfall on crops in September and October, according to a department crop report.

 

Although analysts have said the markets have already factored in significant crop losses Down Under due to drought, the trade next week may take another look at the situation as more harvest results come in, Brugler said. The trade will also continue to focus on export demand, he said.

 

There are concerns export demand is waning after importers front-loaded purchases early in the marketing year, analysts said. The U.S. Department of Agriculture said Thursday that weekly export sales were 602,800 metric tonnes, below trade expectations.

 

"We know it's slowing down but how quickly is it slowing down?" Brugler asked about export demand.

 

The Commodity Futures Trading Commission on Friday afternoon is slated to release the weekly commitments of traders report for the period ended Oct. 23. On Monday, the USDA is due to release a weekly export inspections report at 11 a.m. EDT and a weekly crop progress report at 4 p.m. EDT.

 

 

Kansas City Board of Trade

 

KCBT wheat futures ended mostly firmer, with new-crop July sharply higher on heavy unwinding of bull spreads between the old and new crop, traders said. KCBT wheat in particular has seen heavy bear spreading, said Brian Hoops, president of Midwest Market Solutions, in a market comment.

 

KCBT July wheat closed up 17 cents at US$6.86.

 

"Bear spreading is not a sign of a bull market," Hoops said.

 

The weaker U.S. dollar and stronger outside markets, particularly crude oil, were supportive, a KCBT floor trader said. Volume was seen as light, with some traders taking a step back after sharp price swings earlier in the week, he said.

 

During the next week to 10 days, the Meteorlogix forecast calls for dry weather and normal to above-normal temperatures across the central U.S. The trend will allow producers to make good progress on winter wheat planting in the Plains, the firm said.

 

However, some areas of the southwestern Plains are turning drier, a trend that "bears monitoring during the rest of the fall season," Meteorlogix said.

 

 

Minneapolis Grain Exchange

 

Unlike CBOT and KCBT July wheat futures, MGE July wheat ended lower. There was "just no interest" in buying the July late in the session, a MGE floor broker said.

 

At the CBOT and KCBT, "you've got your big (funds) rolling their longs from the front months to the deferreds," the broker said. "There has just not been a lot of July trade here."

 

Overall, the day session was relatively quiet, the broker said. There was some late inter-market spreading, with traders trying to buy MGE March and May wheat while selling KCBT March and May, he said.