November 30, 2007

 

US Wheat Review on Thursday: Trims gains after strong rally

 

 

U.S. wheat futures finished firmer but well off session highs after prices soared earlier in the session on short-covering and uncertainty about world supplies, traders and analysts said.

 

Chicago Board of Trade March wheat closed up 6 1/2 cents at US$8.88 1/4 per bushel, the contract's highest close since Oct. 22. The contract hit a session high of US$9.11 in open auction trading and almost rose the daily, exchange-imposed limit of 30 cents.

 

Kansas City Board of Trade March wheat settled up 10 3/4 cents at US$9.06 1/4 and hit a session high of US$9.25 in open auction trading. Minneapolis Board of Trade March wheat ended 11 3/4 cents higher at US$9.33 after reaching limit up during the session.

 

The markets had strong bullish momentum after several contracts on Wednesday closed limit up, analysts said. There were lingering concerns about tight global supplies after Argentina said Wednesday it was closing its wheat export registry for five days to assess crop damage from recent frosts.

 

Although the Argentine situation may be moot in a few weeks, the suspension of export registrations raised uncertainty about global supplies, said Shawn McCambridge, analyst for Prudential Financial in Chicago. The uncertainty prompted shorts to get out of the market, he said.

 

"All of a sudden, you throw some uncertainty into the market with the Argentine situation," McCambridge said. "Shorts just want to get out."

 

Commodity funds bought an estimated 6,000 contracts at the CBOT. Options trade was active amid the uncertainty.

 

CBOT December wheat exceeded the typical 30-cent limit during the session, rising by as much as 31 1/2 cents at one time. The contract wasn't bound by the usual exchange-imposed limit because Friday is its first notice day, which means it is the first day on which notices of intention to deliver actual commodities against futures market positions can be received.

 

Deliveries against the Chicago Board of Trade December wheat contract are expected to be 500 contracts to 2,500 contracts, analysts said.

 

Prices pulled back on profit-taking and some speculative selling, traders said. The market was technically overbought, McCambridge said.

 

"It just feels like maybe we're topping this rally out a little bit," he said. "I think people are questioning whether or not it was warranted."

 

After the rallies and volatility Wednesday and Thursday, the markets may settle back and wait for more information about the Argentine situation, McCambridge said. Traders want to get a better idea of how much damage may have been done from the cold snap.

 

Traders also want a better idea about how big Argentina's crop is. Argentina's Agriculture Secretariat sees 2007-08 wheat production at 15.4 million tonnes, while the U.S. Department of Agriculture sees the crop at 15.5 million tonnes.

 

 

Kansas City Board of Trade

 

KCBT and MGE wheat futures largely followed activity at the CBOT as they did Wednesday, floor traders said. Technical buying and follow-through momentum supported the strong gains, they said.

 

Concerns about dryness in hard red winter wheat areas of the U.S. Plains provided underlying support, an analyst said. In the Plains wheat areas, the best chance for moisture this weekend is in the north-central to east-central areas, DTN Meteorlogix said.

 

"The very dry southwest will miss most of this precipitation," Meteorlogix said.

 

The six-to-10-day outlook, through Dec. 9, calls for very little moisture in the Plains and western Midwest. The renewed dry weather pattern will be "of most concern to the southwest Plains, where dry soils have already hurt wheat development," Meteorlogix said.

 

Deliveries of KCBT December wheat are expected to be zero to 1,000 contracts. It doesn't seem as though "anybody's expecting much in Kansas City" as far as deliveries, a KCBT trader said.

 

 

Minneapolis Grain Exchange

 

The USDA said total weekly export sales for the week ended Nov. 22 were 498,000 metric tonnes, at the high end of trade expectations. The sales were seen as solid but not "overtly bullish," an analyst said.

 

Sales of 2007-08 wheat were 407,500 tonnes. The top buyers included Pakistan, which took 100,000 tonnes, and Japan, which took 89,700 tonnes. Sales of 2008-09 wheat were 90,500 tonnes, according to the USDA. Unknown destinations bought 81,500 tonnes.

 

Twenty-five weeks into the marketing year, export sales have already reached 89% of the USDA's target for the year.

 

"Export sales were good," McCambridge said. "Earlier concerns that the pace had dropped, I think, are overblown. We don't need much of an export program over the last six months of the (marketing) year to exceed the USDA's forecast."