US Wheat Review on Monday: Early rally fades amid burdensome supplies

 

 

Wheat futures on the Chicago Board of Trade fell for the fourth consecutive session amid large supplies and sluggish demand.

 

December soft red winter wheat fell 2 1/2 cents to US$5.57 1/4 a bushel, after earlier reaching US$5.79 3/4, and March wheat fell 2 1/4 cents to US$5.78 1/2.

 

December hard red winter wheat at the Kansas City Board of Trade fell 2 3/4 cents to US$5.54 a bushel, while December hard red spring wheat on the Minneapolis Grain Exchange rose 1 cent to US$5.93 1/4.

 

Chicago wheat led the rest of the CBOT grain markets higher in early trading, as continued weakness in the U.S. dollar and gold's rally to a record high above US$1,170 an ounce spurred speculative fund buying.

 

Speculative buying faded late in the day, leading to profit-taking and hedging-related selling, said Sterling Smith, an analyst with Country Hedging in St. Paul, Minn.

 

Burdensome domestic supplies and soft exports suggest wheat prices may decline more, Smith said. CBOT wheat may be 25 cents to 30 cents overvalued, he said.

 

"We have ample supplies" of wheat, Smith said. "Fundamentally, wheat is probably not well-supported at these prices. But as long as the dollar remains weak, it's going to be difficult to pressure the wheat, and it's susceptible to short, intense rallies."

 

A weak dollar makes U.S. products cheaper for foreign buyers.

 

U.S. wheat stockpiles at the end of the 2009-10 marketing year will total 885 million bushels, the U.S. Department of Agriculture estimated in a report earlier this month. That's up 35% from the previous year and more than double the ending stocks of 306 million bushels for 2007-08.

 

Wheat exports in 2009-10 are seen declining to 875 million bushels, from 1.015 billion bushels in 2008-09.

 

For now, outside markets are overshadowing bearish fundamentals in wheat, said Bill Tierney, an analyst with Doane Advisory Services in St. Louis.

 

"It's very hard from a fundamental standpoint to justify higher wheat prices at this time," Tierney said. "At some point, fundamentals are going to reassert themselves."

 

Commodity funds sold 3,000 CBOT wheat contracts by the end of Monday's session, floor sources estimated.