February 3, 2006

 

US Wheat Review on Thursday: Higher on funds, US HRW wheat supply

 

 

U.S. wheat futures ended higher Thursday, led by gains and new contract highs in Kansas City Board of Trade hard red winter wheat on fund buying and supply concerns amid a lingering U.S. Southern Plains drought and La Nina signs, brokers said.

 

La Nina, a mild cooling of the tropical Pacific Ocean, tends to encourage wet weather in the Pacific Northwest and dry conditions in the South. NOAA said La Nina could affect U.S. crop weather through spring and into summer.

 

Moreover, Thursday's news that top U.S. wheat grower Kansas experienced the warmest January on record and forecasts for colder temperatures next week in the U.S. HRW wheat belt sparked U.S. crop-damage worries, brokers said.

 

"There is nothing on the demand side today that warrants this type of rally," one wheat broker said. "Hard red winter wheat cash trade is zero today and there is no cash soft red market to speak of."

 

"We're not going to come to terms with Iraq's tender package (to buy 1 million tonnes of hard wheat, with bids expected to be opened Sunday) for a while; and while Australia may get India's wheat business, a sale of 500,000 tonnes (to India) is not going to make that much difference on the global market, anyway," he said.

 

"It could be a (HRW wheat) supply issue," the trader said. "But the money flow looked 'fundy' (looked like fund buying in KCBT), and we have to acknowledge that there is a widening speculative interest in owning U.S. wheat futures and increasing media coverage of the fund participation in commodities overall."

 

CBOT March wheat ended Thursday up 8 cents at US$3.47 1/4 per bushel, above its key 200-day moving average of US$3.43 1/2; while May closed up 8 1/4 cents at US$3.58 1/2 per bushel.

 

Commodity funds bought at least 7,000 contracts, led by Man Financial's purchase of about 4,000 December and 400 March; JP Morgan bought 500 March, Fimat bought March and May, and locals were late-day sellers of July while buying CBOT July corn.

 

"Open interest in here (and KCBT wheat) has been spectacular," the wheat trader said. "And if you total up the U.S. soft red winter wheat crop, it's worth about 300 contracts a day versus the daily volume we see.

 

"Yes, there is a tie to the cash markets (particularly in the hard red winter wheat market), but there is no reason why the tail can't wag the dog. You have to respect the potential of capital flow as a phenomenon."

 

CBOT grain traders also noted recent news reports that Citigroup had estimated on Jan. 27 that "around US$200 billion is invested in commodities," and that up to another US$40 billion could enter commodity markets during 2006.

 

Weekly U.S. wheat export sales for the week ended Jan. 26 totaled 358,200 tonnes for the 2005-06 marketing year and 71,000 tonnes for the 2006-07 marketing year, the U.S. Department of Agriculture reported Thursday.

 

Weekly export sales of U.S. soft red winter wheat totaled a negative 27,100 tonnes, while export sales of U.S. hard red winter wheat lead, at 144,600 tonnes, led the tally, the USDA said.

 

In overnight wheat export news, Japan bought 60,000 tonnes of U.S. wheat in an overall purchase of 80,000 tonnes.

 

In other global wheat news, the European Union grain management committee granted export licenses for 200,000 metric tonnes of subsidized free-market wheat at a maximum refund of EUR4.92/tonne in its weekly tender Thursday. Last week, 375,000 tonnes of wheat licenses were granted at EUR6.74/tonne.

 

Russia's grain exports during the first seven months of the 2005-2006 marketing year (July-January) rose 69% on the year to 9.3 million tonnes, including flour in grain value, Prime-Tass News Agency reported Thursday, citing an analyst with Russia's Institute of Agricultural Market Studies.

 

 

Kansas City Board of Trade

 

KCBT March wheat closed Thursday up 9 3/4 cents at US$4.02 3/4 per bushel after setting a contract high of US$4.05; and May ended up 10 1/2 cents at US$4.08 after making a new contract high of US$4.08 1/2. All traded contracts set new highs.

 

The KCBT/CBOT March wheat spread settled Thursday at 55 1/2 cents, premium KCBT, after closing Wednesday at 53 3/4 cents, premium KCBT.

 

Prudential Financial bought a net 700 March and 500 July; ABN Amro bought 300 March and sold July; the Refco division of Man Financial and ADM Investor Services sold a net 300 July and 300 December while buying 150 March.

 

Kansas City spot cash railcar basis bids for 11% and 12% protein wheat were unchanged Thursday, bids for 135 protein rose 1 cent, and bids for 14% protein were steady, according to the KCBT.

 

 

Minneapolis Grain Exchange

 

MGE March closed Thursday up 7 3/4 cents at US$4.00; and May closed up 8 cents at US$4.05. All deferred months beginning with July set new contract highs.

 

Cash U.S. spring wheat basis bids were steady to lower Thursday, cash sources said.

 

Minneapolis rail receipts of wheat on Thursday totaled 204 cars versus last year's 95 cars. Durum receipts totaled 7 cars versus last year's 5 cars.