December 29, 2005

 

US Wheat Review on Wednesday: Ends higher on speculative buying

 

 

U.S. wheat futures ended higher Wednesday, led by speculative buying in Chicago Board of Trade and Kansas City Board of Trade wheat futures in anticipation of new index fund buying in early 2006, brokers said.

 

An infusion of long-only index fund money is expected to echo last year's early fund buying, as investors continue to look to a sector that has outperformed stocks and bonds recently.

 

"We initially led the way, but KCBT also caught a fund bid," one CBOT wheat broker said. He noted that farmer sales had picked up near the US$3.60 level in CBOT July, while KCBT traders also noted increased farmer hedging as nearby futures soared to 2 1/2-month highs.

 

Still, wheat traders and analysts have noted there are ramifications due to building speculative investment in U.S. wheat futures.

 

"If we decide that our wheat should be higher priced, we're going to price ourselves out of the export market very quick because there are cheaper sellers out there on the world market," Shawn McCambridge, a grain analyst at Prudential Financial, said recently amid increased fund buying and talk of even more in 2006.

 

"You have to take a two-pronged approach when you look at prices," he added. "You look at fundamentals and then you look at the speculative influence. The market sentiment is that we're going to see a fair amount of investment money coming into the commodities. The chatter coming from that segment of the industry is that these trading-type entities did very well in trading commodities in 2005."

 

CBOT March wheat closed Wednesday up 5 1/2 cents at US$3.45 1/2 per bushel, after setting a 2-1/2-month high of US$3.46 1/2; and May ended up 5 1/4 cents at US$3.54 1/4.

 

Funds bought about 8,000 contracts, with late buying of 1,000 March by ADM. Calyon Financial bought about 2,500 March, Tenco Inc. bought 1,000 March, Prudential Financial sold 1,500 March and Rand Financial sold about 1,000 March, brokers said.

 

Cash spot U.S. SRW wheat basis bids were steady to firm Wednesday; and spot midday Gulf SRW wheat basis bids were steady, grain sources said.

 

Overnight U.S. wheat export sales were quiet.

 

In global wheat news, the Russian agrarian market institute, or IKAR, said Russia was likely to export 12.4 million metric tonnes of grain this year, compared with 9.1 million tonnes in the 2004-2005 marketing year.

 

The 2005-2006 exports will include 10.5 million tonnes of wheat and 1.5 million tonnes of barley. The wheat export figure to date totaled 6.9 million tonnes, up from last year's 4.5 million tonnes.

 

Moreover, market analyst APK Inform said Wednesday that Ukraine's wheat exports would likely hit 4 million metric tonnes by year-end and could amount to 5.5 million tonnes in the whole 2005-2006 marketing year.

 

Ukraine exported 4.375 million tonnes of wheat in the 2004-2005 marketing year.

 

In South America, Argentina sold 2.075 million metric tonnes of 2005-06 wheat as of Dec. 23, just behind last year's 2.225 million tonnes, the Agriculture Secretariat reported.

 

Brazil's top wheat-producing state has reduced its estimate of its wheat crop by nearly 12.5% because of heavy rains during the harvest, Parana state's secretary of agriculture said.

 

 

Kansas City Board of Trade

 

KCBT March wheat settled up 4 1/2 cents at US$3.90 1/4 per bushel; and May ended up 6 3/4 cents at US$3.83 3/4.

 

The KCBT/CBOT March wheat spread settled Wednesday at 44 3/4 cents, premium KCBT, after closing Tuesday at 45 3/4 cents.

 

ADM Investor Services bought 500 July and sold 800 March, the RIS division of Man Financial bought 600 march and 200 July, Fimat sold 500 March, Man Financial bought 2,800 March and 100 May while selling 100 July, Prudential Financial bought 400 March and UBS sold a net 200 March, brokers said.

 

Cash spot U.S. HRW cash basis bids were mostly steady to mixed Wednesday; spot midday U.S. Gulf HRW basis bids were unchanged Wednesday, cash sources said.

 

Forecasts for mostly dry, warm conditions through Friday across the southern U.S. Plains HRW wheat belt also underpinned deferred contracts, brokers said.

 

"The extended forecast calls for mostly dry to perhaps light showers over the weekend, with temperatures still above normal," said Joel Burgio, meterologist at Meteorlogix weather service.

 

"The six- to 10-day outlook calls for temperatures above normal and rainfall mostly below-normal," he said. "This is not a favorable forecast. It's a continuation of the anomalously warm temperatures and little, if any, rainfall, which will continue to delete available soil moisture in the HRW belt."

 

Burgio also noted that winds, which helped fan grass fires in Texas and Oklahoma this week, should die down on Wednesday but could pick up Thursday.

 

"Don't look for any long periods of less winds," he said, adding that high winds were especially detrimental this year due to unusually dry soil in the southern belt.

 

 

Minneapolis Grain Exchange

 

MGE March closed up 5 1/2 cents at US$3.92 1/2 per bushel; and May wheat settled up 4 1/2 cents at US$3.90.

 

Cash U.S. spring wheat basis bids were steady Wednesday, while Minneapolis wheat rail receipts Wednesday totaled 100 cars versus 186 cars last year.