January 15, 2008
US Wheat Review on Monday: CBOT, Kansas City Board of Trade July wheat close limit up
Deferred-month U.S. wheat futures Monday finished limit up on continued bullishness about government acreage estimates, but nearby contracts trimmed gains toward the end of the session
Chicago Board of Trade March wheat ended 7 3/4 cents higher at US$9.17 per bushel after temporarily trading limit up, 30 cents higher. CBOT July wheat, which represents the new crop, finished 30 cents higher at US$8.36.
Kansas City Board of Trade March wheat rose 9 cents to US$9.33 after temporarily trading limit up earlier in the session. KCBT July wheat closed 30 cents higher at US$8.78 1/2.
Minneapolis Grain Exchange March wheat jumped 15 1/2 cents to US$10.78 1/4 after temporarily locking limit up. MGE July wheat finished up 29 1/4 cents at US$10.01, while several other deferred contracts traded at the exchange ended limit up.
The markets bolted higher at the opening of trading on follow-through buying after several contracts closed limit up Friday on bullish U.S. Department of Agriculture estimates for 2008-09 winter wheat seedings. The USDA pegged seedings below trade estimates, surprising analysts who had predicted that a rally to all-time high prices in 2007 would prompt farmers to seed more winter wheat.
The USDA also Friday released crop reports that were bullish for corn, sparking a renewed battle for acreage among spring wheat, corn and soybeans, analysts said. The markets all want to increase output to loosen tight ending stocks, they said.
The USDA put all winter wheat seedings at 46.610 million acres, well below the average analyst estimate of 48.657 million. In 2007, seedings were 44.987 million.
"The market's got to try and get more spring wheat acreage," said Alan Brugler, president of Brugler Marketing & Management.
Front-month wheat futures felt some pressure heading into the close from index fund selling, traders said. Index funds Monday likely finished up their annual rebalancing Monday and sold about 3,000 contracts at the CBOT, a floor trader said.
Estimates for increased 2007-08 wheat ending stocks also may have begun to weigh on the markets, an analyst said. The USDA pegged 2007-08 U.S. wheat ending stocks at 292 million bushels, above the average analyst estimate of 274 million. In December, the USDA put stocks at 280 million.
"Nearby wheat, I think, is still suffering the hangover from the USDA having larger carryover stocks than people anticipated," said Dave Marshall, an independent marketing advisor and commodities broker.
Looking ahead, the markets could have a turnaround on Tuesday in which traders take profits after rallying for two days, Brugler said.
Kansas City Board of Trade
KCBT July wheat closed limit up and was synthetically trading about 3 to 5 cents per bushel higher at the close, a floor trader said. The USDA on Friday estimated 2008-09 seedings of hard red winter wheat were down from the previous year, including in Kansas and Oklahoma.
The USDA pegged HRW wheat seedings at 32.5 million, down from 32.94 million in 2007. The declines were seen as a "huge surprise," Marshall said.
Toward the end of the session, there was pressure from "a little bit of profit-taking and continuing of the rebalancing" of index funds, the KCBT floor trader said. There were about 1,100 contracts sold going into the close, he said.
The next 10 days offer very little in the way of moisture chances for HRW wheat in the U.S. southern Plains, DTN Meteorlogix said. A new push of Arctic-origin cold air will move across the central U.S. late this week, and it poses some threat of stress to the Plains winter wheat crop, the private weather firm said.
Minneapolis Grain Exchange
The pullback in nearby MGE wheat futures "all began when Chicago started to come off" its limit up levels, a MGE floor trader said. Talk about the USDA's estimates continued to dominate the trading session, and there are some traders who are skeptical of the USDA's low estimates, he said.
"There's some doubt in a lot of traders minds about the USDA's numbers, but they're the only numbers we've got so we have to trade them," the trader said.
There also was scattered chatter about dryness in Argentina, the traders said. The Meteorlogix forecast calls for a return to hot and dry weather in Argentina this week.