December 12, 2007

 

US Wheat Review on Tuesday: Slides on profit-taking after USDA report

 

 

U.S. wheat futures closed lower Tuesday on profit-taking after a U.S. Department of Agriculture supply and demand report failed to present the markets with unexpected bullish data, traders said.

 

Chicago Board of Trade March wheat tumbled 19 cents to US$9.10 1/2 per bushel. Kansas City Board of Trade March wheat slipped 9 3/4 cents to US$9.51 3/4, and Minneapolis Grain Exchange March wheat fell 11 cents to US$10.07.

 

The markets were due for a setback as recent rallies were technically overdone, analysts said. A lack of surprising, bullish news opened the door for traders to book profits, they said.

 

The USDA, in its December supply/demand report, lowered its estimate for 2007-08 U.S. wheat ending stocks to 280 million bushels from 312 million last month. However, traders had expected a decline due to solid demand, and the decrease was already dialed into prices, analysts said.

 

World wheat ending stocks, meanwhile, were increased slightly to 110.1 million metric tonnes from 109.8 million, which was seen as somewhat bearish, traders said.

 

"There wasn't anything in the numbers today that would give people reason to want to chase this market," said Dale Durchholz, analyst for AgriVisor. "You've got to respect that, hey folks, we're back over US$9 again. We're not cheap. You need something to fuel buying interest when you're up at these levels."

 

In other forecast adjustments, the USDA trimmed its estimate for Argentina's production to 15 million tonnes from 15.5 million tonnes in November and lowered its estimate for European Union production to 120.5 million from 120.86 million. The USDA also shaved its estimate for Canada's crop to 20.05 million tonnes from 20.6 million.

 

The changes were mostly expected, although some traders may have been looking for a bigger drop in Argentine production after frosts last month, Durchholz said. The USDA also raised its forecast for U.S. wheat exports by 25 million bushels on increased foreign imports and on "reduced supplies and exports for key competitor countries."

 

Wheat futures stumbled despite gains in the neighboring CBOT corn and soybeans markets. Commodity funds sold an estimated 3,000 wheat contracts at the CBOT but were buyers in the other markets.

 

Solid demand continues to underpin the market, a CBOT floor trader said. After the close, Egypt's state-owned General Authority for Supply Commodities said it was tendering to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Jan. 5-20, on a free-on-board basis. The date of delivery for that tender is February, and the deadline for bids is 1200 GMT Wednesday.

 

The results of the tender should help give the markets direction Wednesday, traders said. A sizable purchase from any country may be seen as supportive because it will drain tight world supplies, they said.

 

 

Kansas City Board of Trade

 

The trade seemed to follow a "buy the rumor, sell the fact" scenario after a price run-up leading into the USDA report, a KCBT floor trader said. Traders had already penciled in the decline in U.S. wheat stocks, he said.

 

The other major story of the day was a major winter storm system in the U.S. Plains, the trader said. The storm was seen as bearish for bringing needed moisture to dry hard red winter wheat areas, he said.

 

The storm could also potentially cause some damage to wheat if more than an inch of ice accumulates, according to Cropcast Agricultural Weather. A "large area" stretching from central Kansas to northern Missouri has already seen near or over an inch of ice, with Hutchinson, Kan., approaching 3 inches, the weather firm said.

 

"This system will wrap up over this area by the overnight hours, but will leave a large area of concern in its wake," Cropcast said. "Only time will tell the extent of the damage from this ice, but the combination of the heavy accumulations and colder-than-normal temperatures will likely lead to crop damage in this region."

 

 

Minneapolis Grain Exchange

 

The MGE was due for some profit-taking after December and March wheat surged above US$10 in recent sessions, a floor trader said.

 

Ending stocks for all classes of U.S. wheat are down in the USDA's December supply/demand report, but hard classes were hit harder than soft wheat, traders said. Hard red spring wheat and hard red winter wheat are traded at the MGE and KCBT, respectively, while soft red winter wheat futures are linked with the CBOT.

 

The USDA lowered its estimate for hard spring wheat stocks by 5 million bushels to 87 million, while hard winter wheat stocks were seen down 15 million bushels at 109 million. The USDA put white winter wheat stocks at 26 million bushels, down 6 million, and durum carryout was seen at 14 million, down 5 million. Soft winter wheat stocks, meanwhile, were 44 million, down 1 million from last month.