December 27, 2007

 

US Wheat Review on Wednesday: Ends firmer as new crop leads the upside

 

 

U.S. wheat futures closed higher Wednesday, with deferred months leading the upside on borrowed strength and the unwinding of some bull spreads, analysts said.

 

There was further support from news that Argentina will keep its export registry closed indefinitely and from a sale of U.S. new-crop soft red winter wheat, they said.

 

Chicago Board of Trade March wheat rose 6 cents to US$9.41 1/4 per bushel. Kansas City Board of Trade March wheat jumped 3 1/2 cents higher to US$9.67 1/2, and Minneapolis Grain Exchange March wheat finished up 4 cents at US$10.73.

 

The wheat markets felt spillover support during the day session from a rally in the CBOT soy complex, traders said. Soybeans, soyoil and soymeal climbed following gains in Asian and outside markets and amid expectations for strong demand, they said.

 

Wheat's strength came from "the big gains in the soybean market," said Tom Leffler, owner of Leffler Commodities. Soybeans also helped support the neighboring CBOT corn market, he said.

 

Traders unwound some bull spreads, which weighed on nearby contracts and support the new crop, analysts said. Deferred months have gained on the nearby contracts in recent sessions.

 

Argentina's Agriculture Secretariat, meanwhile, confirmed it will keep its wheat export registry closed indefinitely while the government continues to study damage from a frost in November. Officials want to know whether the cold snap will limit output and threaten domestic supply.

 

The extended closure renewed bullish concerns about tight global supplies, traders said. World stocks are historically low after global weather problems this year slashed production in key producing areas.

 

Indeed, Argentina inspired some "good, old-fashioned risk premium adding" with the extended closure, said Mike Zuzolo, analyst with Risk Management Commodities. Traders added risk premium due to uncertainty about the size out Argentina's crop, about the condition of the crop in the U.S. Plains and about whether Russia will increase grains export restrictions, he said.

 

Leffler said he was unsure that there would be a significant impact on world supplies from Argentina keeping its registry closed longer. Before the closure, Argentine exporters had already "pushed out so much" of the crop for export, he said.

 

Exporters had declared more than 7 million metric tonnes of 2007-08 wheat for export prior to the closure, according to the Agriculture Secretariat. About 10.5 million metric tonnes of wheat are expected to be available for export from the new crop, according to the U.S. Department of Agriculture.

 

In other bullish news, the USDA said 120,000 tonnes of U.S. soft red winter wheat was sold to unknown destinations for delivery in 2008-09. There are ideas that demand for U.S. wheat is slowing down because of high prices, so the sale was supportive, particularly for new-crop July wheat, a CBOT floor broker said. CBOT July wheat closed up 14 1/2 cents at US$8.06 1/2.

 

Commodity funds bought an estimated 3,000 contracts at the CBOT.

 

 

Kansas City Board of Trade

 

KCBT wheat futures found direction in the surging CBOT soy complex and corn market, a floor trader said. A weaker tonnee in the U.S. dollar also was supporitve, in said.

 

The weather picture has improved for wheat in much of Kansas and other areas of the Plains following recent rounds of precipitation, Leffler said. However, it seems as though the markets are not paying much attention, he said.

 

"We've got a lot of places that are just snow covered," Leffler said. "The market just kind of seems to ignore that."

 

During the last half of the week, the DTN Meteorlogix forecast calls for several weather systems to cross the country, with the result being consistent occurrences of winter weather over the main U.S. crop areas, according to DTN Meteorlogix. Significant snow and possible blowing snow begins later Thursday and continues Thursday night, the private weather firm said.

 

Total snowfall in western Kansas, southwest Nebraska, and eastern Colorado will range up to eight inches. The snow will provide cover for winter wheat against cold winds, offering some benefit for the dormant crop, the firm said.

 

 

Minneapolis Grain Exchange

 

Trading was thinner than normal at the MGE due to the holidays, and the market mainly followed the CBOT higher, a MGE floor trader said. Traders are eager to see the USDA's January crop report to find out how much more winter wheat was planted this year, he said.

 

U.S. weekly wheat export inspections of 18.450 million bushels were within trade estimates. Analysts had predicted inspections of 17 million to 23 million.