January 26, 2006


US Wheat Review on Wednesday: Up on speculative buying, US human rights watch, ukraine



U.S. wheat futures ended higher Wednesday, led by gains in Chicago Board of Trade soft red winter wheat futures on speculative short-covering and new buying by trend-following funds, brokers say.


All traded Kansas City Board of Trade and Minneapolis Grain Exchange wheat contracts also set new contract highs Wednesday on speculative buying, along with worries about the drought-stressed U.S. crop in the Southern U.S. Plains after Texas reported Monday a deterioration in its winter wheat crop condition to 85% in poor to very poor shape; and winterkill concerns in Ukraine and Russia, brokers said.


While light rain was forecast Friday and Saturday for parts of the U.S. hard red winter wheat belt, KCBT traders said much of the precipitation was expected to fall east of the driest HRW fields.


Moreover, they noted some weather models predicted colder temperatures in the 11- to 15-day forecast.


News from Eastern Europe was equally bullish.


Ukraine's wheat production this year was expected to total about 9.2 million metric tonnes - half of its 2005 level - due to severe winter cold, Prime-Tass reported Wednesday, citing domestic analyst APK-Inform.


Winter wheat, which accounts for most of Ukraine's wheat output, was expected to total 7.92 million tonnes, down from 17.54 million last year. Expected declines in acreage farmed and yields were also behind the estimate.


Meanwhile, Ukraine's spring wheat production was estimated at 1.24 million tonnes, slightly up from 1.03 million in 2005.


"The expected 2006 wheat production might be sufficient for domestic requirements taking into account large carryover stocks," APK-Inform said, but the country may need to import wheat and wheat flower in the in the marketing year from July 2006 to June 2007.


Still, it was CBOT wheat, the most heavily traded of the three U.S. wheat futures and the most bearish fundamentally this year, that led Wednesday's gains, leaving CBOT wheat traders shaking their heads Wednesday at the way speculative buying has lifted U.S. SRW prices above foreign selling offers.


CBOT March wheat settled Wednesday up 9 1/2 cents at US$3.42 after setting a near-three-week high of US$3.45; while May ended up 9 1/2 cents at US$3.52 3/4 per bushel.


Commodity funds bought 12,000 CBOT wheat contracts, after entering the session net short about 22,100 CBOT wheat futures, brokers said.


JP Morgan bought 2,500 March; Prudential Financial and Calyon Financial each bought a net 1,500 March and sold 500 May; R.J. O'Brien bought 1,200 March, ABN Amro bought 1,100 March, the Refco division of Man Financial bought 800 March; and Fimat sold a net 800 March, brokers said.


Fimat also bought 1,000 March US$3.30 put options and 500 March US$3.50 calls and sold 500 March US$3.50 calls.


Cash U.S. soft red winter wheat midday barge bids were steady, while South Korea bought 19,000 tonnes of U.S. wheat, sources said.


In global wheat news, India's wheat crop is expected to total 75.5 million metric tonnes in 2006 with market arrivals from the upcoming harvest likely beginning in the third week of March, the federal government said Wednesday.


Another 150,000 tonnes of wheat will be released this month on top of an equivalent quantity which has already been released in January, sources said. The move to release more wheat from the government's stocks is aimed at stabilizing local prices.


Still, Indian analysts said they remained skeptical about achieving this year's crop estimate if the last two years were any indication; bad weather just ahead of March harvest hurt wheat output in 2004 and 2005.


Speculation that India might need to import wheat underpinned CBOT wheat prices late last year but has been repeatedly dashed by the Indian government.



Kansas City Board of Trade


KCBT March wheat closed Wednesday up 5 1/2 cents at US$3.91 per bushel, after setting a contract high of US$3.95; while May ended up 5 1/2 cents at US$3.92 1/2.


The KCBT March/CBOT March wheat spread settled at 49 cents, premium KCBT, continuing its retreat from last Friday's high close of 57 1/2 cents, premium KCBT. The spread closed Tuesday at 53 cents, premium KCBT.


Kansas City spot cash railcar basis bids for 11% through 14% wheat were steady Wednesday, according to the KCBT. Midday HRW Gulf spot basis bids were also steady, cash sources said.



Minneapolis Grain Exchange


MGE March closed Wednesday up 4 1/4 cents at US$3.96 3/4 after setting a contract high of US$4.01; and May wheat settled up 5 cents at US$4.00 per bushel.


Cash U.S. spring wheat basis bids were steady to 15 cents lower on Wednesday, cash sources said.


Minneapolis rail receipts of wheat on Wednesday totaled 72 cars versus last year's 46 cars. Durum receipts totaled 50 cars versus last year's 44 cars.


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