November 1, 2006

 

US Wheat Review on Tuesday: Prices down on profit-taking, technical pressure

 

 

End-of-the-month profit-taking and technical pressure Tuesday pushed U.S. wheat prices to their lowest levels in weeks, sources said.

 

December Chicago Board of Trade wheat ended down 18 cents at US$4.83 per bushel, December Kansas City Board of Trade settled 8 1/2 cents lower at US$5.16, and December Minneapolis Grain Exchange wheat closed 10 1/4 cents lower at US$4.95 1/4.

 

Bill Nelson, grains analyst for A.G. Edwards and sons, said prices broke below key moving averages during the day session. CBOT December wheat prices hit their lowest levels since Oct. 9.

 

"The market's got pretty technically weak lately," Nelson said.

 

End-of-the-month liquidation, particularly among funds, further drove down prices, sources said.

 

Spread trading was heavy at CBOT. In CBOT pit trades, JP Morgan spread 3,000 December/March, Fortis spread 1,000 December/March, Fimat spread 1,000 December/March, and ABN Amro spread 1,000 March/December.

 

"It was a little bit of everything at the end of the month," one CBOT floor source said.

 

Nelson said the date may have contributed to weaker prices but noted that he saw the relationship as somewhat "coincidental." He attributed Tuesday's weakness more to the technical action and to a higher crop rating released Monday by the U.S. Department of Agriculture.

 

The report said the amount of U.S. winter wheat in the good-to-excellent condition category increased three percentage points. Recent rains in the western U.S. wheat belt have improved the crop's condition, analysts said.

 

"You had the increase in the wheat condition rating," Nelson said. "That was fundamentally bearish."

 

Ukraine, meanwhile, resumed its wheat exports, which had ground to a halt after the government began requiring exporters to obtain licenses without issuing any.

 

Now that the exports are flowing again, at least 79,000 metric tonnes of Ukrainian wheat are expected to be delivered to India in November. Some traders had speculated that suppliers would arrange for wheat shipments from alternative origins in the event of an ongoing delay from Ukraine.

 

In other news, China's Zhengzhou Grain Wholesale Market said it planned to auction 354,000 metric tonnes of imported wheat from state reserves. The Chinese have imported less wheat this crop year than last because of high prices, analysts said.

 

Some analysts saw the auction as an effort to fill a local shortage of high-quality imported wheat.

 

Nelson said the Chinese periodically will auction off their reserves. He noted, however, that "certainly they're not oblivious" to high prices.

 

 

Kansas City Board of Trade

 

A KCBT floor source said there was light volume all day and a little bit of a late sell-off. He attributed the sell-off to end-of-the-month liquidation.

 

The source said traders intensified the sell-off once they saw prices would close below key moving averages. He added that KCBT was following CBOT prices lower.

 

 

Minneapolis Grain Exchange

 

An MGE floor source said the weaker close was "a technical correction." He said MGE did not close as low as CBOT because "Minneapolis is much more reluctant to go down."

 

"Before, Chicago was leading us higher," he said, referring to recent rallies. "Now we're the ones who are stronger."

 

He said volume was light and that there was some end-of-the-month profit taking.