November 10, 2006

 

US Wheat Review on Thursday: Fund selling, weak corn push prices lower

 

 

U.S. wheat futures closed sharply lower Thursday on pressure from fund liquidation and weaker prices in the neighboring corn market, sources said.

 

December CBOT wheat settled down 16 cents to US$4.88 a bushel, December Kansas City Board of Trade wheat closed down 16 3/4 cents at US$5.14 3/4, and December Minneapolis Grain Exchange wheat closed down 13 1/4 cents at US$5.01.

 

Prices slid to their lowest levels just before the close of the day trading session on fresh fund liquidation of December contracts, a CBOT floor source said. Corn also was lower and pushed wheat prices down, he said.

 

"The whole floor was feeding on itself," he said.

 

The declines followed the morning release of a key U.S. Department of Agriculture supply/demand report, which kept a forecast of U.S. wheat ending stocks steady from October's estimate.

 

The USDA's estimate for world wheat ending stocks declined slightly, but a CBOT floor trader said the overall affect of the report was neutral.

 

"The government basically came out this morning and basically did nothing," he said.

 

The report was seen as slightly bearish to other traders, however, because the USDA increased its production estimate for the Former Soviet Union from 79.89 million metric tonnes in October to 82.69 million tonnes. The USDA cut production in Australia, which has suffered a severe drought, from 11 million tonnes to 10.5 million.

 

"We were looking for Australia to go even lower," a source said.

 

In a separate report, the USDA said U.S. weekly wheat export sales totaled 572,900 metric tonnes for the week ended Nov. 2. The activity was within the 400,000-600,000 tonne range expected by analysts but still left the U.S. well under sales from the same time last year. Weekly sales were 39% below last week and 9% under the prior four-week average.

 

"We better see some business," the floor trader said.

 

Major buyers included Egypt at 120,000 tonnes and Indonesia at 80,000 tonnes, including 55,000 tonnes switched from unknown destinations.

 

An Oregon-based broker said news reports that Egypt will change the way it buys wheat were causing concerns the U.S. could lose Egypt as an export destination.

 

Under new buying procedures, Egypt would buy the cheapest wheat delivered to Egypt, instead of the cheapest wheat free-on-board, according to the reports.

 

"It puts all U.S. wheat completely out of the mix," the broker said.

 

 

Kansas City Board of Trade

 

There was heavy trading volume early and late in the day session and "really light" volume in between, a KCBT floor source said. In the last 20 minutes of trading, selling triggered stops that shoved prices lower, he said.

 

At the close, traders were selling December contracts and buying March contracts, he said.

 

Wheat futures felt pressure from weaker corn prices, the source said.

 

"Corn's been the leader either way," he said.

 

 

Minneapolis Grain Exchange

 

Trade at MGE was "very volatile," a floor source said. Prices followed Kansas City and Chicago lower, and funds liquidated December positions, he said.

 

Corn prices also pressured wheat, the source said.

 

"We've been rallying with corn for the past week," he said. "If they turned south, we were going to go with them."

 

The USDA report did not have much affect on wheat prices, the source said.

 

"I guess it was more of a corn report than a wheat report to begin with," he said. "Keeping everything unchanged really isn't that big of a surprise."

 

Cold temperatures have moved into Western Canada, meanwhile, providing the first significant blast of winter weather of the season and essentially ending fieldwork in most regions, according to the Canadian Wheat Board's crop update for the week ended Nov. 6.

 

Weekly temperature deviations were 3 to 5 degrees Celsius below normal in Alberta and Saskatchewan, while Manitoba's temperatures were 1 to 3 degrees below normal, the CWB report said.