October 31, 2007
US Wheat Review on Tuesday: Sinks on profit-taking, weak outside markets
Profit-taking and pressure from weaker outside markets drilled U.S. wheat futures lower Tuesday, analysts and traders said.
Chicago Board of Trade December wheat sunk 14 1/2 cents to US$8.14 per bushel. Kansas City Board of Trade December wheat tumbled 17 1/4 cents to US$8.37, and Minneapolis Grain Exchange December wheat fell 19 cents to US$8.37.
The markets were due for a setback, an analyst said, after front-month contracts on Monday briefly hit limit up, 30 cents higher, before settling sharply higher. There were ideas Monday's gains were overdone and that there was room for a correction to the downside, said Tom Leffler, owner of Leffler Commodities.
A rally in crude oil helped wheat prices climb Monday, and weakness in crude oil weighed on wheat Tuesday, CBOT floor traders said. Other outside markets, such as gold, also stumbled, adding to the bearish tonnee for commodities, they said.
Commodity funds sold an estimated 3,000 wheat contracts at the CBOT.
The Australian Bureau of Agricultural & Resource Economics, or Abare, released an updated crop forecast overnight that pegged wheat production at 12.1 million metric tonnes, down from its September estimate of 15.5 million tonnes. The new estimate was within expectations and did not offer traders any kind of bullish surprise, analysts said.
"I don't think 12.1 (million tonnes) was nearly as bullish as traders wanted to see," Leffler said.
In other news, India said it planned to import about 1 million metric tonnes of wheat from December to March 2008, and Turkey said it planned to issue a tender to purchase 300,000 metric tonnes of milling wheat. Even though the purchases would take wheat off the world market, the tenders did not boost prices as they were largely factored into the trade already, an analyst said.
India said during the summer it would buy 5 million tonnes in 2007, but has so far contracted purchases of only 1.3 million tonnes. Turkey in September said it would import 800,000 tonnes by the end of May.
Also, neither country is expected to buy U.S. wheat, traders said.
Moving forward, the trade is eager to see whether the Federal Reserve will cut interest rates Wednesday, Leffler said. If rates are lowered, it will put more pressure on the dollar, which is bullish for U.S. commodities, he said. A weaker dollar gives foreign importers more buying power.
Kansas City Board of Trade
KCBT wheat futures fell in a "Turnaround Tuesday" scenario after Monday's rally, a KCBT floor trader said. The market was looking toward declines in crude oil, he added.
Profit-taking came in amid a lack of fresh bullish news and ahead of the end of the month, the trader said. The U.S. Department of Agriculture's weekly crop progress report, released Monday afternoon, was seen as neutral, he said.
The USDA said 55% of the winter wheat crop was in good-to-excellent condition as of Oct. 28, down from last year's rating of 60%. Twelve percent of the crop was seen in poor-to-very poor condition, and 33% of the crop was rated in fair condition.
The USDA said 88% of the winter wheat crop was planted, down from 90% last year and the five-year average of 90%. The USDA reported that 70% of the winter wheat crop has emerged, just below the 71% in 2006 and the average of 64%.
Areas of the southwestern Plains still need more rain, traders said. However, a generally dry weather pattern in place during the rest of the week, a forecaster said.
Minneapolis Grain Exchange
Volume was thin as MGE wheat futures pulled back from Monday's rally, a MGE floor trader said. MGE traders were watching the same factors as their counterparts at the CBOT and KCBT, including weakness in crude oil, he said.
MGE wheat futures, in particular, were also following activity at the CBOT, the trader said. Nobody paid much attention to the USDA's crop condition ratings, which were the first for the recently-planted crop, because it is still early in the season, he said.
