November 7, 2006

 

US Wheat Review on Monday: Higher close on China, in recovery action

 

 

U.S. wheat futures closed higher Monday on concerns about a drought in one of China's key growing areas and in a move to recover from declines posted last week, sources said.

 

Trading was cautious prior to Thursday's scheduled release of monthly government crop-production data, analysts said.

 

December Chicago Board of Trade wheat ended up 5 1/2 cents at US$4.98 per bushel, December Kansas City Board of Trade settled 4 cents higher at US$5.26, and December Minneapolis Grain Exchange wheat closed 6 3/4 cents higher at US$5.09 3/4.

 

Corn and soybeans futures ended flat or modestly higher in anticipation of the U.S. Department of Agriculture's November crop production report, sources said.

 

"At this point, it looks like you've got corn and soybeans really biding their time until Thursday's report," said Mike Hogan, a market analyst for Stewart-Peterson. "I think wheat may be going along on their coattails at this time."

 

Hogan said small speculators were in the market. In CBOT pit trades, Fimat bought 300 December and sold 100 December. Iowa Grains bought 200 March.

 

With little fresh news out, bulls fed on reports that a two-month-old drought in eastern China has damaged wheat crops in a major grain-producing area, an analyst said. News about the dry conditions in the Shandong province were supportive, even though it is more of a consideration for new-crop wheat than old-crop, the analyst said.

 

Rainfall in densely populated Shandong is 81% below normal levels since early September, according to reports. The drought is likely to cause a drastic reduction in grain output and could last through the traditionally dry winter, the reports said.

 

"We're obviously short this year," Hogan said, referring to tight global wheat supplies. "I think any type of news that puts the crop at all in question is at least going to be supportive."

 

Wheat production in the U.S Plains was down 14% this year because of a drought, according to news reports. The decline was even greater in South Dakota and North Dakota, where total production was down 17% over last year.

 

The USDA says world wheat inventories are at their lowest level since 1982 and predicts global demand will surpass production for the sixth time in the past seven years. U.S. growers are expected to plant more wheat as prices rise and inventories fall, the agency said.

 

U.S. export inspections totaled 11.884 million bushels for the week ended Oct. 26, which was also below trade expectations. Year-to-date 358.145 million bushels of wheat have been inspected for export compared to 439.321 million last year.

 

The inspections figures are "nothing to get excited about," a CBOT floor source said. New export sales are needed to sustain a strong rally of wheat prices, he said.

 

 

Kansas City Board of Trade

 

KCBT trading was "very, very, very quiet," a floor source said. The source said traders were waiting until the USDA production report was released before making any significant market moves.

 

"We're waiting for the next big thing," he said. "We've just run out of steam."

 

The source agreed news about China's drought was bullish but said more details were needed about the situation.

 

"I don't think you can get too excited about China until you have firmer numbers," he said.

 

In KCBT pit trades, JP Morgan bought 200 December, 300 March and 400 July, the source said. Man Financial bought 200 December, 200 March and 200 July, he said.

 

 

Minneapolis Grain Exchange

 

MGE December wheat led the upside. However, there was no significant fundamental news to justify the gains, a MGE floor source said.

 

There was some light inter-market trading but not much overall volume at MGE, he said.

 

"We're kind of adrift in a pretty wide price range here," he said. "It doesn't take much to move things around. There really wasn't very much trade action."