November 5, 2005

 

US Wheat Review on Friday: Ends Mixed; Index accounts noted in CBOT

 

 

U.S. wheat futures settled mixed Friday. Kansas City Board of Trade wheat firmed on USDA's report that 800,000 metric tonnes of U.S. hard red winter wheat had been sold to Iraq, and Chicago wheat was mixed on active rolling of nearby December positions by index funds, brokers said.

 

"We are in the throes of spreading from the (nearby CBOT) December contracts by what appears to be long-only indexes (funds) rolling long positions forward," one CBOT wheat broker said.

 

"Long-only" index funds are a relatively new phenomenon in the wheat market and differ from speculative commodity funds that will trade long and short based on technical factors, brokers said.

 

The "long-only" index funds have reportedly built a small long position in KCBT and are not invested in MGE wheat futures, wheat brokers said.

 

These index funds, meanwhile, have built a huge position in CBOT wheat and the forward rolling boosts the carry in the U.S. soft red winter wheat market, the CBOT wheat broker noted.

 

"The firm that today rolled about 6,000 December wheat and 6,000 December corn to new-crop CBOT December wheat and corn contracts only does this trade once a year, and we think there is more (of each crop) to do," he added. "The regular monthly fund roll begins Monday, but December is already under pressure because people are anticipating it."

 

Besides the long index fund business, speculative commodity funds were net sellers of about 4,000 CBOT wheat contracts Friday, leading traders to forecast a record net short fund position after Friday's close.

 

The CFTC will report late Friday its Commitments of Traders report as of Tuesday.

 

CBOT December wheat futures settled Friday down 2 cents at US$3.11 1/4, while CBOT March wheat ended down 1 1/2 cents at US$3.27 1/4.

 

Fimat sold a net 1,000 December and bought 500 March, Iowa Grain sold 2,000 December, Refco Inc. sold 1,000 December, and SA Inc. and JP Morgan each sold 300 December, brokers said. Commercials ADM and Cargill Inc. each bought 200 March.

 

Spreading was noted ahead of the Nov. 30 first notice day for deliveries against CBOT December, brokers said. R.J. O'Brien spread 1,000 December/March while Fimat USA spread 500 December/May.

 

Cash spot U.S. SRW wheat basis bids were steady to firm Friday, with an 11 1/2-cent gain in Cincinnati and a 14-cent gain in St. Louis, cash brokers said. Spot midday CIF SRW wheat basis bids steady, they noted.

 

Traders also noted ample global wheat supplies continued to weigh on CBOT wheat futures. In particular, they noted China's Henan province planned to sell nearly 1 million metric tonnes of old wheat reserves Saturday. The wheat was produced between 1998 and 2003, with the majority of it grown around 2000, the source said.

 

Zhengzhou Grains Wholesale Market also sold around 250,000 metric tonnes of imported wheat. The grain had been mostly imported from Canada in 1999-2001 and stored as state reserves in the coastal provinces of Liaoning, Shandong, Jiangsu and Guangdong, sources said.

 

Moreover, Ukraine wheat exports during October rose to 1.618 million metric tonnes from 1.339 million tonnes in September, according to Ukraine's association of agrarian exchanges.

 

 

Kansas City Board of Trade

 

KCBT December wheat ended Friday up 4 1/4 cents at US$3.66 3/4 and March closed up 3 3/4 cents at US$3.71 3/4.

 

The USDA's confirmation of U.S. sales to Iraq, in the amount expected, dry weather in Texas HRW wheat growing areas and rains in Australia, where the early wheat harvest is underway, were supportive, brokers said.

 

"Monday's openings will depend on three factors: one, weather in Texas; two, weather in Australia; (and) three, Friday afternoon's CFTC report," one KCBT broker said. "It feels to us that this week's lows will be the seasonal lows for HRW."

 

Fimat USA sold 200 December, Prudential Financial bought 100 December and 150 March, Refco Inc. bought 200 December, 500 March and 200 July, Shay Trading sold 350 December and bought 100 March and Tenco Inc. bought 100 December and sold 200 March, brokers said.

 

In spread trade, ADM Investor Services bought 300 December/March and 200 March/July, they added.

 

Cash spot U.S. HRW wheat basis bids were steady to weak Friday; while spot midday Gulf HRW basis bids steady, they noted.

 

 

Minneapolis Grain Exchange

 

MGE December wheat settled up 1 cent at US$3.72 1/2; and March closed up 1/2 cent at US$3.78.

 

"We struggled all day to find much of anything to trade," one MGE broker said late Friday. "We don't seem to have much interest in trade between US$3.67 and US$3.75 (basis December), and only light commercial sales at US$3.76."

 

He reported a lack of major buyers or sellers Friday, and noted that locals were a little more hesitant about carefully evening their positions after Thursday's late surge caught some short. Cash spot U.S. HRS wheat basis bids were steady to firm Friday, with a 14-cent gain in St. Louis and a 11 1/2-cent gain in Cincinnati, Ohio, cash sources said.