December 8, 2007

 

US Wheat Review on Friday: Minneapolis Grain Exchange December soars well above US$10 on tightness

 

 

U.S. wheat futures soared Friday on solid global demand and fears about shrinking supplies, with the spot-month Minneapolis Grain Exchange contract setting a new all-time high for any wheat futures price.

 

Contacts at all three exchanges closed limit up, 30 cents higher, in a MGE-led rally, traders said. Follow-through buying from a strong rally Thursday also helped pull the markets higher, they said.

 

Chicago Board of Trade March wheat closed 30 cents higher at US$9.21 1/2. Kansas City Board of Trade March wheat rose 30 cents to US$9.50, and Minneapolis Grain Exchange March wheat finished up 30 cents at US$10.02 1/2.

 

MGE was the leader in the wheat markets for the second consecutive session as traders remained nervous about dwindling supplies of spring wheat, an analyst said. Traders also began to focus on the need to secure wheat acres next fall, he said.

 

There are concerns spring wheat, planted in the U.S. on the Northern Plains, could lose acres to soybeans this spring, said Tim Hannagan, analyst at Alaron. The market needs to buy back those acres because wheat stocks are already historically low, he said.

 

"They're hinting that spring wheat acres are now going to turn to beans," Hannagan said. "We really can't have that."

 

U.S. millers can usually look to Canada for extra spring wheat, but production across the border is down sharply from last year due to reduced plantings and unfavorable weather. Canada lowered its official crop forecast this week, and the U.S. Department of Agriculture may follow suit in a crop report due out next week.

 

"Smaller-than-expected wheat crops in Canada and strong commercial demand for Minneapolis wheat helped to drive prices higher," said Brian Hoops, president of Midwest Market Solutions.

 

The USDA report, due out at 8:30 a.m. EST Tuesday, is expected to peg 2007-08 U.S. wheat carryout at 296 million bushels, down from 312 million in November, according to a Dow Jones Newswires survey of 13 analysts. The range of analysts' estimates was 262 million to 319 million.

 

Some analysts also expect the USDA to raise its export forecast. They said a potential increase could be of 10 million bushels to 25 million bushels.

 

As of Nov. 29, 26 weeks into the wheat marketing year, export commitments were 84% above a year ago, according to the USDA. Commitments had already reached 90% of the USDA's target for the marketing year, which began June 1.

 

"The USDA, we believe, is going to be forced to increase" its export forecast, said Joe Victor, vice president of marketing for Allendale.

 

Solid world demand also helped propel Friday's rally, analysts said. Egypt bought 115,000 tonnes of Russian wheat, and India's PEC Ltd. bought 150,000 metric tonnes of wheat from an Australia-based trading company.

 

Although none of the wheat was from the U.S., the sales were still supportive because world supplies are low, an analyst said. There was also market chatter that Egypt may be back in the market for more wheat next week, traders said.

 

Commodity funds bought 5,000 contracts at the CBOT.

 

 

Kansas City Board of Trade

 

KCBT wheat futures were a follower of MGE in the rally but still closed with many contracts at limit up, floor traders said. Market talk about the potential for more export business was supportive, a trader added.

 

There are also still underlying concerns about dry weather in hard red winter wheat areas of the U.S. Plains, an analyst said. It looks as though the driest areas of Kansas will not get hit with any significant moisture during the weekend, he said.

 

DTN Meteorlogix said some beneficial moisture is possible in southern Plains wheat areas during the next five days, as disturbances move eastward out of a deepening western USA trough. The best chance for meaningful moisture is in the north and southeast areas, the weather firm said. The parched southwest will likely be on the lower end of the range during this period.

 

 

Minneapolis Grain Exchange

 

Spot-month MGE December wheat soared well above US$10 per bushel to break its own record for the highest price wheat has ever traded at any U.S. exchange. The contract closed up 30 cents at US$10.43, topping the previous high of US$10.13.

 

Ending stocks of all U.S. wheat classes are tight, but traders' are focused on spring wheat because the market can still influence how much of it is seeded, Hannagan said. Soft red winter wheat and hard red winter wheat, traded at the CBOT and KCBT, respectively, are already in the ground.

 

"All the risk now is in Minneapolis, so the Minneapolis gain is really justified," Hannagan said.

 

The rally at MGE helped pull up futures prices at the two other U.S. grain exchanges, traders said.