November 9, 2007

 

US Wheat Review on Thursday: Tumbles on poor export sales

 

 

U.S. wheat futures closed sharply lower Thursday on poor weekly export sales and big cancellations of previous purchases, traders said.

 

Benchmark Chicago Board of Trade December wheat fell 25 3/4 cents to US$7.62 per bushel, its lowest close since Aug. 29. The contract has eased nearly US$2 off its all-time high of US$9.61 3/4, set Sep. 28.

 

Kansas City Board of Trade December wheat closed down 22 1/4 cents at US$7.89, and Minneapolis Grain Exchange December wheat dropped 20 1/2 cents to US$8.22 1/2.

 

The U.S. Department of Agriculture said weekly export sales for the week ended Nov. 1 were 14,600 metric tonnes, well below trade estimates of 200,000 to 600,000 tonnes. The sales were a marketing-year low, 92% below the previous week and 98% under the prior four-week average.

 

Cancellations and buybacks were large at 301,400 tonnes. Countries that bought U.S. wheat near record highs have been opting out of their purchases now that prices are lower and will likely continue to do so, analysts said.

 

Prices climbed this summer and fall as global production problems stoked fears about supply shortages and prompted countries to overbuy on wheat, said Tim Hannagan, analyst for Alaron Trading in Chicago. Now, there is no more fear that the world will run out of wheat, he said.

 

Egypt, a major buyer on the world market, helped push wheat futures to record levels with large purchases. However, in the past week, it canceled an order for 57,000 tonnes of U.S. soft red winter wheat, used to make cakes and pastries.

 

"They were overbooking and overbuying wheat, thinking we could have US$13 wheat or something," Hannagan said about importing countries. "Nobody knew. Those same countries that were panic buying are now not buying at all."

 

Countries will live hand-to-mouth, buying wheat only as they need it, Hannagan said. If they can, many importers may defer purchases until next year, when prices are expected to fall due to increased production, he said.

 

"May and June harvest of our winter wheat crop will be here sooner than you think," Hannagan said. "In the world export market, that's very close. It's OK to sit on your hands and wait."

 

Optimistic chatter that late rains may have rejuvenated some of Australia's drought-ravaged crop also added pressure on prices, said Jason Britt, broker and analyst for Central State Commodities.

 

"For awhile it was a race to the bottom" as far as predicting crop losses Down Under due to dryness, Britt said. But, "we've always said wheat's a weed and it has a tremendous recuperating ability," he said.

 

The USDA is slated to release its November supply and demand report at 8:30 a.m. EST Friday. It will include updated forecasts for U.S. and world ending stocks and global production.

 

Analysts said they expected the USDA to drop its estimate for Australia's production to about 12.1 million metric tonnes, which is the most recent estimate from the Australian Bureau of Agricultural & Resource Economics. Last month, the USDA pegged output Down Under at 13.5 million tonnes.

 

 

Kansas City Board of Trade

 

The disappointing export sales were the focus of the market, a KCBOT floor trader said. There were net negative sales of hard red winter wheat traded at the KCBT. Morocco canceled a purchase of 76,500 tonnes of HRW wheat, used to make bread.

 

Long liquidation and fund selling also weighed heavily on the market, the trader said. Funds rolled positions from December into March, he said.

 

A dry weather pattern during the next 10 days doesn't bode well for soil moisture in major winter wheat areas, DTN Meteorlogix said. Soils in the southwest Plains are now judged to be in abnormally dry to moderate drought condition in the latest Drought Monitor, the firm said.

 

"This decline in soil moisture could potentially harm wheat crop prospects for the 2008 harvest," Meteorlogix said.

 

 

Minneapolis Grain Exchange

 

The weak export sales and long liquidation pressured MGE wheat futures, a floor trader said. The trade is waiting for the USDA to release its supply/demand report, he added.

 

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 range of estimates was 221 million to 350 million.