November 17, 2006

 

US Wheat Review on Thursday: Sharply weaker on corn, weak export sales

 

 

U.S. wheat futures closed sharply lower Thursday on technical weakness in the neighboring corn market and pressure from disappointing export sales, sources said.

 

December Chicago Board of Trade wheat ended 12 3/4 cents lower at US$4.68 3/4 a bushel, December Kansas City Board of Trade wheat closed 10 1/4 cents down at US$5.11 1/2, and MGE December wheat settled down 9 cents at US$4.90 1/2.

 

Wheat futures posted modest, early gains on overnight strength and spillover support from higher corn prices. Prices tumbled lower, however, when corn broke, said Dale Durchholz, senior analyst with AgriVisor Services.

 

There was follow-through selling after the losses, sources said.

 

"It just kind of took the prop out under from wheat," Durchholz said about the corn break.

 

Money flows were in control of price movements, Durchholz said. A CBOT floor source added that sales during the day session were used to relieve overbought conditions.

 

"The money and technical features are probably the biggest things that are in play in the market," Durchholz said.

 

Weak export sales also provided a bearish undertonnee to the market, and there are ideas that prices need to come down to attract new business, sources said.

 

U.S. weekly wheat export sales totaled 323,100 metric tonnes for the week ended Nov. 9, 44% below the previous week and 47% under the prior 4-week average, the U.S. Department of Agriculture reported. Major buyers were Nigeria, with 79,200 tonnes, and Israel, with 45,600 tonnes.

 

The sales were within trade estimates of 250,000 tonnes to 600,000 tonnes but still seen as disappointing, sources said.

 

"The export number we had here today wasn't anything to set the world on fire," Durchholz said.

 

Japan said it bought 125,000 metric tonnes of wheat, including 65,000 tonnes from the U.S., in a routine tender concluded Thursday.

 

Four South Korean flour mills jointly bought 21,500 metric tonnes of U.S. No.1 wheat in a tender concluded Wednesday for shipment between Jan. 1-31. The purchase includes 11,500 tonnes of western white wheat, 4,200 tonnes of hard red winter wheat, and 5,800 tonnes of dark northern spring wheat.

 

The Japanese and South Korean business was expected, a CBOT trader said.

 

"I didn't see it as supportive," he said.

 

Weather concerns for wheat growing areas are bullish at this point, a CBOT floor source said, although he added that it is too soon for them to affect prices. Favorable spring conditions could still undo damage to crops, he said.

 

In the Southern Plains, dry eastern wheat areas had a few light showers Wednesday, but precipitation totaled less than 1/4 inch, DTN Meteorlogix said. There is virtually no rainfall ahead for the region through the majority of next week, the weather firm said.

 

"After some generous rains to begin the fall season, drier weather is taking a toll on conditions of the winter wheat crop, and leading to a very-low soil moisture supply going into the winter," Meteorlogix said.

 

A seasonal drought assessment issued Thursday by the Climate Prediction Center of the National Weather Service noted prospects for drought relief were poor in moisture-deficit areas of Oklahoma, southern Kansas and adjacent parts of Oklahoma.

 

"Across the southern tier of states, the ongoing El Nino should contribute to improving drought conditions in the Southwest, the southern Plains, and the Southeast, although many locations will see persisting or worsening drought conditions before relief arrives later in the outlook period," the center said.

 

Argentine wheat maturation and harvest, however, should see benefits from dry conditions next week as a strong high pressure system re-emerges across the Pacific Ocean and shifts a main storm track south of concentrated production areas, T-Storm Weather said.

 

 

Kansas City Board of Trade

 

KCBT wheat futures started stronger off overnight strength, then dropped lower after CBOT corn broke, a floor source said. Prices hit stops on the way down, which accelerated selling, he said.

 

"Throughout the day we followed corn," he said.

 

Trade volume was moderate, and there was some rolling out of the December/March spread, he said.

 

Weekly wheat export sales were "lackluster," the source said.

 

 

Minneapolis Grain Exchange

 

MGE wheat futures skidded lower after CBOT corn broke, a floor source said. After the break, there was some profit-taking.

 

"I think it's all based on the weakness in the corn," the source said about the lower close. "Every time we see corn break, we see wheat go down twice as fast."

 

Weekly export sales were expected to be weak but were still considered bearish, the source said.

 

"It was nothing that we didn't know already," he said about the sales. "It just confirms what we already know, that wheat's overpriced right now."

 

There was some inter-market spreading to KCBT against MGE, the source added.