US Wheat Review on Wednesday: Rallies 7%-9% on spillover, commodity surge
U.S. wheat futures rallied 7%-9% Wednesday, spurred by a sharply lower U.S. dollar, spillover from limit-up gains in corn and soybeans and rallies among nearly all commodities.
Basis December contracts, Chicago Board of Trade wheat rose 47 1/4 cents to US$5.61 1/4, wheat on the Kansas City Board of Trade added 44 3/4 cents to US$5.98 and the Minneapolis Grain Exchange rallied 44 3/4 cents to settle at US$6.61 1/2 a bushel.
Though prices pared limit-up gains in late trade, wheat held impressive strength considering news Wednesday that Egypt bought 120,000 metric tonnes of Russian wheat in a tender, leaving the U.S. in the cold. This was the latest evidence that other countries remain fiercely competitive on the world market.
"The news of Egypt buying Russian wheat is a little bearish, but with the sharp fall in the U.S. dollar...it could end up being favorable to wheat because it could lead to better export business," said Brian Hoops, analyst and president of Midwest Market Solutions.
A prolonged downturn in the greenback from its recent highs would ultimately be supportive for commodities as a weak dollar makes goods cheaper for foreign buyers. But the Federal Open Market Committee's gloomy remarks on the economic outlook are expected to keep the deleveraging and money flows into the dollar intact.
"The pace of economic activity appears to have slowed markedly," the FOMC said in a statement following the two-day meeting on interest rates.
A 50 basis point cut to 1% Wednesday now leaves the door open for the FOMC to trim all the way to zero if they need, analysts said.
Still, commodities rallied on improved investor sentiment linked to firmer trade on Wall Street, the rate cut and the falling dollar, which ultimately benefited wheat prices.
CBOT December wheat eventually climbed to its 60-cent daily trading limit, topping out at a one-week high of US$5.74 a bushel, before profit-taking pared some of those gains into the closing bell. The rally also triggered technical buying as prices climbed above the 10-day and 20-day moving averages intraday.
Funds bought about 3,000 wheat contracts on the day.
Export sales, scheduled for release Thursday morning, are estimated at 350,000 to 550,000 tonnes, a KCBT trader said.
KANSAS CITY BOARD OF TRADE
KCBT December wheat vaulted to a two-week high of US$6.13 1/4, following the CBOT grain complex gains and widespread commodity rally.
The renewed technical strength, despite where exports come in on Thursday, will likely allow prices to test Wednesday's highs, the floor trader said.
MINNEAPOLIS GRAIN EXCHANGE
Prices rallied to limit-up on the widespread commodity strength and on limit-up gains in corn and soybeans, a trader said.
December wheat topped out at US$6.76 3/4, a three-week high, and closed above both the 10- and 20-day moving averages on the buying interest. The December-March spread also continued to widen, a bullish sign for the market.
"December holds a large premium over March, and that's a very bullish indication for wheat right now," said Hoops.
Floor traders this week have cited nearly a complete lack of producer selling and light mill interest in the market, accounting for at least part of the strength.