November 10, 2007

 

US Wheat Review on Friday: Trims losses on late short-covering

 

 

U.S. wheat futures settled mixed Friday after short-covering trimmed heavy early losses suffered on the back of technical weakness and bearish fundamental factors, analysts said.

 

Chicago Board of Trade December wheat settled flat at US$7.62 per bushel, down 16 1/2 cents on the week. Kansas City Board December wheat fell 4 1/4 cents to US$7.84 3/4, down 21 1/2 cents on the week. Minneapolis Grain Exchange December wheat finished 4 1/2 cents lower at US$8.18, up 4 1/2 cents on the week.

 

Long liquidation and profit-taking helped keep the markets on the defensive during most of the day session, an analyst said. Wheat futures are in a near-term technical downtrend after climbing to all-time highs earlier this fall, he said.

 

However, the markets rebounded late in the session on short-covering and some bargain buying, a CBOT floor trader said. CBOT December wheat hit a session low of US$7.45 and traded to a session high of US$7.64 shortly before the close.

 

"Wheat ended mixed, rallying off of session lows on heavy short-covering before the weekend," said Brian Hoops, president of Midwest Market Solutions.

 

Prior to the late recovery, the U.S. Department of Agriculture's November supply and demand report put some light pressure on prices, traders said. The USDA put world wheat ending stocks at 109.8 million metric tonnes, up from its October estimate of 107 million tonnes.

 

The USDA also raised its forecast for global wheat production to 603.3 million metric tonnes, a 2.83-million-tonne increase from its October prediction of 600.47 million. The agency attributed the increase to higher output in Argentina, China and Ethiopia, which more than offset reductions in Australia and Brazil.

 

U.S. ending stocks were pegged at 312 million bushels, above the average trade guess of 294 million. The new forecast was a slight increase from the USDA's October estimate of 307 million.

 

The jump in world and U.S. ending stocks was seen as a little bit of a surprise because the markets were looking for a decline in stocks, said Tom Leffler, owner of Leffler Commodities. Overall, however, the report did not show any major changes for wheat, he said.

 

"Really, it didn't have that much in it as far as the wheat market went," Leffler said about the report.

 

A quiet export front also continued to be bearish for wheat, analysts said. Export sales have slowed recently, and there are ideas cancellations/buybacks will continue now that prices have pulled back from all-time highs set earlier this fall, they said.

 

"What this market has got to be concerned about is zero exports," said Louise Gartner, analyst with Spectrum Commodities. "These countries that were buying at the top are now starting to give those contracts back."

 

In the near term, traders will continue to wait for signs of fresh demand, Leffler said. The USDA, in its supply and demand report, kept its forecast for U.S. wheat exports unchanged from last month.

 

 

Kansas City Board of Trade

 

There are growing concerns among producers and traders about dryness in portions of the Plains, Leffler said. A good rain would make "a big difference" in the condition of the crop, but it has been a long time since the driest areas have had a good drink of water, he said.

 

Spring rains are more important to the crop's output than fall moisture, a KCBT floor trader said.

 

"It's too early to get overly pessimistic" about the dryness, Leffler said. "There's plenty of time for things to happen."

 

Forecast weather models show a major disagreement in the outlook for temperatures during the next 10 days, DTN Meteorlogix said. Of special note is a call for notable cold temperatures in the central U.S. The prospect of much colder weather in the central U.S., including Plains wheat areas, bears monitoring for a chance of burn-back to the wheat crop, the weather firm said.

 

 

Minneapolis Grain Exchange

 

Follow-through technical selling weighed on the market, and the USDA's crop report did not generate too much attention during the day session, a MGE floor trader said. A slowdown in export sales was more of a concern, he said.

 

The USDA raised its estimate for U.S. hard spring wheat ending stocks by 5 million bushels to 92 million bushels, while U.S. stocks of other classes were unchanged. The change weighed on MGE spring wheat futures, an analyst said.