December 14, 2005

 

US Wheat Review on Tuesday: Mostly firmer in late CBOT rally

 

 

A late rally in Chicago Board of Trade soybean futures lifted U.S. wheat futures into the close Tuesday, but as a whole the market ended mixed, pressured by a ruling that might allow in greater imports of Canadian wheat.

 

The news pushed wheat futures down for much of the day, with the Kansas City Board of Trade wheat futures leading the downside. KCBT was the market most affected since it trades hard red winter wheat there. Minneapolis Grain Exchange hard red spring wheat contracts also fell, as did the soft red winter wheat contracts at the Chicago Board of Trade, but their losses were limited.

 

CBOT March wheat rose 3 3/4 cents to US$3.18 1/2 a bushel. KCBT March fell 1/4 cent to US$3.60 and MGE March rose 1/2 cent to US$3.70 1/2.

 

U.S. wheat futures were mixed to weaker much of Tuesday on a ruling by a panel under the North American Free Trade Agreement on a tariff dispute, which will allow imports of Canadian hard red spring wheat without any duties.

 

The Canadian wheat will be able to enter the U.S. without duty liability as soon as the Nafta Secretariat issues the notice of final panel action, a process that should be completed within the next few weeks. The ruling was prompted by an October decision from the U.S. International Trade Commission that said Canadian wheat imports do not injure U.S. producers or drive down prices.

 

"It's a bit of a depressant, but in the larger view, if the export sales pick up and we have (poor) overseas crops, it won't matter," one wheat analyst said.

 

The sell-off pushed KCBT wheat to its lowest levels since Nov. 28 and helped the March contract close an upside gap from that timeframe that ran from US$3.55 1/2 to US$3.57.

 

Further pressure came from news that Argentina's wheat sales for new-crop wheat totaled 1.725 million metric tonnes versus 1.25 million tonnes last year.

 

"It's a bit of a disappointment that Argentina has less wheat to sell but yet they're still being very aggressive in their sales," said John Kleist of John Kleist Consulting.

 

Near the close of the session soybeans rallied to new session highs, which spilled over to CBOT wheat. Traders said short covering could have been behind the rally, although some wondered if it was new buying at the lows.

 

"Yesterday we saw new buying in wheat because the open interest went up, maybe that's it today," one floor source said.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT wheat contracts closed mixed after mostly weaker trade, but sources were surprised by the way the market came back. They attributed the move up to the late rally in CBOT wheat and the strength in soybeans, but one trader added "you don't trade wheat in soybeans, but I don't have much more of an explanation than that."

 

Some commercial buying interest appeared at the session lows, coming in around US$3.56 in the March contract, limiting downside. Additionally, some buying interest in the new-crop spreads was seen, with some bulls putting in a weather premium in new-crop wheat.

 

Analysts point to the weekly Texas state crop report that noted deterioration in the wheat crop after the recent cold snap as another supportive point for new-crop wheat.

 

"We know how cold it got down here and it didn't get that cold down there. Now with this Arctic blast forecast for the next seven to 10 days, if it gets to Texas and the crop was damaged from before, it could happen again. A few people were a little gun-shy and wanted to put some premium in," an analyst said.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

MGE wheat ended firmer after a quiet session.

 

"There just wasn't much here today. There was some selling, but then we had light commercial support in the US$3.60s," said one source at the exchange.

 

The market only had a muted reaction to the Nafta news, he said.

 

"If Canada had a normal crop, we might fear an influx," he said. "But so much of their wheat is feed quality" that it's not an issue.

 

The spot December contract popped higher late in the session, but sources said that the contract has very little volume and is prone to exaggerated moves.

 

"It's dying its last gasp. Like a dying rabbit, it's kicking its leg, but the rabbit isn't moving," the source said.