November 8, 2007

 

US Wheat Review on Wednesday: Ends mixed on profit-taking, bear spreads

 

 

U.S. wheat futures closed mixed Wednesday, as profit-taking, bear spreading and a pullback in crude oil prices weighed on nearby contracts, traders said.

 

Chicago Board of Trade December wheat closed 9 1/4 cents lower at US$7.87 3/4 per bushel. Kansas City Board of Trade December wheat fell 11 cents to US$8.11 1/4, and Minneapolis Grain Exchange December wheat finished 5 cents lower at US$8.43.

 

The markets opened stronger, following overnight gains and firmer outside markets, but quickly retreated as crude oil came off its highs, traders said. The pullback in crude opened the door for traders to take money off the table ahead of the release of the U.S. Department of Agriculture's November supply and demand report, analysts said.

 

Crude oil futures eventually turned lower, putting more pressure on the grains, traders said. Strength in the outside markets has boosted wheat recently, but the spillover support was "dampened a little bit, for today at least," said Alan Brugler, president of Brugler Marketing & Management.

 

Bear spreading was another feature, with traders selling old-crop December contracts and buying new-crop July contracts, analysts said. CBOT July wheat closed 5 1/2 cents higher at US$6.91 1/2.

 

Commodity funds sold an estimated 2,000 contracts at the CBOT.

 

The USDA report, due out at 8:30 a.m. EST Friday, is expected to show a decline in 2007-08 U.S. wheat ending stocks because of the strong pace of export sales, analysts said. The average of analysts' estimates for 2007-08 U.S. wheat ending stocks was 294 million bushels, down from 307 million in October, according to a Dow Jones Newswires survey of 14 analysts.

 

The market will be interested in whether the USDA raises the U.S. wheat export forecast in the report, Brugler said. Still, any changes to wheat's fundamental picture may still take a backseat to the outside markets and the performance of the U.S. dollar, he said.

 

"A lot of the commodity activity right now is related to the whole dollar scenario (more) than the underlying fundamentals," Brugler said. "Eventually we have to go back to trading fundamentals, but right now I don't think we're too focused on them."

 

CBOT corn and soybeans also ended the session in negative territory. Weakness in the neighboring markets added to the bearish tonnee for wheat, a CBOT trader said.

 

News that Argentina will re-open its wheat export registry was seen as bearish because it means more supplies will be available on the world market, an analyst said. Argentina will be competing with the U.S. for export business, he said. However, Argentina's government also said it would raise its wheat export tax to 28% from 20%.

 

Argentina's central crop areas are expected to see rainfall of up to one inch Thursday and Friday, DTN Meteorlogix said. Another round of chilly temperatures will move into southern winter wheat areas during the weekend, the private weather firm said.

 

The cool to cold weather will bear monitoring for a possible dip into the upper 20s Fahrenheit. Temperatures that cold could pose a threat to the wheat crop in southern Buenos Aires and La Pampa provinces, Meteorlogix said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures kept an eye on crude oil during the session amid some position-squaring ahead of the USDA report, a floor trader said. Technical stops were hit as prices tumbled on crude's pullback, and that accelerated losses, he said.

 

Light concerns about dryness in western areas of the U.S. southern Plains, including parts of Kansas and Texas, lent support to the deferred contract months, an analyst said. Rain chances increase across all areas of the Plains on Sunday night and Monday, but the setup doesn't appear ideal for significant rain across the western half of the region, T-Storm Weather said. Instead, highest chances exist from eastern Kansas and southward, the firm said.

 

 

Minneapolis Grain Exchange

 

The "gyrating" crude oil market had a major influence on MGE wheat, a MGE floor trader said. The market isn't trading its fundamentals very much as it is focused on energies and metals, he said.

 

A Pakistani tender for 300,000 tonnes is still hanging over the market, and traders were waiting to hear news about any purchases, the trader said. Turkey reportedly bought about 164,000 tonnes of wheat from the Black Sea region and E.U., he said.