January 8, 2008
US Wheat Review on Monday: Kansas City Board of Trade, Minneapolis Grain Exchange fall limit ahead of rebalancing
U.S. wheat futures fell sharply Monday, with nearby Kansas City Board of Trade and Minneapolis Grain Exchange contracts closing limit down amid expectations for a sell-off by index funds, analysts said.
Chicago Board of Trade March wheat tumbled 28 1/2 cents to US$9.03 per bushel. KCBT March wheat finished limit down, 30 cents lower, at US$9.15 3/4, and MGE March wheat dropped 30 cents to US$10.53 1/4.
Index funds are expected to start rebalancing their positions Tuesday and continue to do some for the next five trading sessions, according to AgResource Company. They are expected to sell wheat and soybean contracts while buying corn, the firm said.
Traders have been discussing the potential impact of the rebalance for several sessions, and it seemed as though traders were trying get themselves out ahead of the fund selling, an analyst said. Expectations for the sell-off also may have shaken some nervous holders of long positions out of the markets, he said.
"We don't have a lot going on fundamentally," said Shawn McCambridge, analyst for Prudential Bache Commodities in Chicago. "This whole obsession with fund rebalancing has overtaken everything else in the market."
AgResource predicted wheat would be hardest hit by the rebalancing. The firm estimated funds will have to sell a daily average of 7,000 contracts of wheat and 6,000 contracts of soybeans and to secure 4,000 contracts of corn.
Commodity funds sold an estimated 3,000 contracts Monday. In CBOT pit trades, Fortis bought 300 July.
"For the next several sessions, we'll be watching to see if the funds come in and sell the amount we expect them to sell," McCambridge said.
Commodity funds sold an estimated 3,000 contracts. In CBOT pit trades, Fortis bought 300 July.
Traders are also waiting to see estimates on U.S. winter wheat seedings, carryout and quarterly stocks in the USDA's upcoming crop report. There may be more positioning ahead of the report, due at 8:30 a.m. EST Friday, analysts said.
Kansas City Board of Trade
KCBT March and May wheat closed limit down amid profit-taking and expectations for the fund rebalancing, a floor trader said. KCBT May wheat settled 30 cents lower at US$9.26 1/4.
There was a general lack of fresh news out during the session to feed the bulls, the trader said. The USDA said weekly wheat export inspections for the week ended Jan. 3 were 17.691 million bushels, within trade estimates. For the current marketing year to date, 802.411 million bushels have been inspected for export, up from 502.040 million at the same time last year.
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 Feb. 1-15, on a free-on-board basis. The results of the tender should give the market direction in the morning, the KCBT trader said.
Minneapolis Grain Exchange
MGE wheat futures ended mixed, with the March and May contracts finishing limit down and deferred months rising on old crop/new crop spreading. Overall volume was "very, very light," a MGE floor trader said.
Bearish chatter about index fund rebalancing circulated around the trading floor, the trader said. However, there is also talk about new demand showing up, and it wouldn't be difficult to shove prices higher later in the week, he said.
"It wouldn't take much to get this thing going again," the MGE trader said. "These markets will probably trade two-sided tomorrow."