November 16, 2007

 

US Wheat Review on Thursday: Climbs on short-covering, weather worries

 

 

Technical short-covering yanked U.S. wheat futures higher Thursday, with underlying support from a mix of bullish weather worries, analysts said.

 

Chicago Board of Trade December wheat climbed 13 cents to US$7.65 1/2 per bushel. Kansas City Board of Trade December wheat ended up 14 3/4 cents at US$7.87, and Minneapolis Grain Exchange December wheat soared 16 cents to US$8.34.

 

CBOT December wheat was due for a bounce after falling more than US$2 from its all-time high of US$9.61 3/4, set on Sept. 28, analysts said. The market was in an oversold condition, they said.

 

Commodity funds bought an estimated 3,000 contracts at the CBOT.

 

Worries about unfavorable weather in key wheat-growing areas of North and South America also boosted prices, traders said. The market is "hyper-sensitive" to potential production problems after poor weather slashed global output this year, said Jason Britt, analyst and broker with Central State Commodities.

 

Sections of Argentina's wheat belt may face damage from a frost or light freeze, DTN Meteorlogix said. Clear skies and calm winds produced a chilly morning in localized areas of Buenos Aires, but any frost doesn't appear to have been widespread, the private weather firm said.

 

There are also concerns about persistent dryness in hard red winter wheat areas of the southern and western U.S. Plains, traders said. The Meteorlogix forecast for the next seven to 10 days shows a possibility for precipitation to develop in the Plains, but the main weather track appears to focus on the eastern Plains through the southern Midwest and Ohio Valley.

 

"This prospect for moisture will be beneficial to soft red winter wheat areas, which are in need of soil moisture," Meteorlogix said. "However, mostly dry weather and above-normal temperatures during the next week will increase stress on the emerging and developing crop in the dry western Plains areas."

 

U.S. wheat ending stocks are still at their lowest level in history and the market is nervous about the threat of bad weather, a CBOT floor trader said.

 

"There's just no room for error," Britt said.

 

There was also support from previously-announced tenders hanging over the market, Britt said. Pakistan, for example, last week issued a tender Tuesday to import 300,000 metric tonnes of milling wheat, with bids to be submitted by Nov. 14.

 

India's state-run MMTC Ltd. earlier this week floated a wheat import tender for around 350,000 metric tonnes. The U.S. isn't expected to win business in either tender, but big purchases would still tighten would supplies, traders said.

 

"Anytime you have a break like this, (demand) is going to pop up," Britt said.

 

In other news, France lowered its 2007-08 soft wheat output to 30.9 million tonnes from its October estimate of 31.3 million tonnes, an analyst said. The latest estimate represents a 7.2% drop on the year and a fall of 10.3% from the five-year average.

 

 

Kansas City Board of Trade

 

Fears about chilly weather in Argentina and the lack of rain in some HRW wheat areas of the Plains were viewed as supportive, a KCBT floor trader said. The USDA will release its next weekly crop progress report Monday, and "you're just in a position to deteriorate the conditions down a little bit" due to the dryness, an analyst said.

 

The U.S. Department of Agriculture at 8:30 a.m. EST Friday is slated to release weekly export sales data, one day later than usual due to the Veterans Day holiday on Monday. Analysts expect sales to total 200,000 to 425,000 metric tonnes.

 

A week ago, total sales of 14,600 tonnes were a marketing-year low, cut down by large cancellations. This week, cancellations may not be as large because some importing countries may start to rebook purchases, Britt said.

 

Countries that cancelled purchases made when prices were higher still need wheat to feed their people, he said.

 

"I would expect with some of those cancellations, all of a sudden, you won't see so many of them, and we'll start to see some rebookings," Britt said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures led the upside amid concerns about tight supplies of spring wheat, a MGE floor trader said. There was some bull spreading, with traders buying December and selling July, he said.

 

Despite the gains, it doesn't appear wheat is poised to mount a "major rally" at this time, said Brian Henry, a broker for Archer Financial Services in Chicago.

 

"A major rally from these levels will require a substantial increase in export demand or new concerns about the development and harvest of crops in the Southern Hemisphere and India," he said in a research note.