February 28, 2008


US Wheat Review on Wednesday: Ends mixed; CBOT, Kansas City Board Of Trade score new highs



U.S. wheat futures closed mixed Wednesday, with nearby Chicago Board of Trade and Kansas City Board of Trade contracts hitting new highs amid ongoing supply worries.


CBOT May wheat closed up 35 1/2 cents at US$12.50 per bushel after briefly climbing the exchange-imposed limit of US$1.35. The contract scored a fresh all-time high of US$13.49 1/2.


KCBT May wheat settled 43 cents higher at US$13.08 after surging to a new high of US$13.70. Minneapolis Grain Exchange May wheat tumbled 96 1/4 cents to US$17.47 as the market continued to pullback from recent strong gains.


Wheat futures at all three exchanges began the day session sharply lower amid follow-through selling from an overnight sell-off, traders said. However, nearby CBOT and KCBT contracts roared back amid concerns about tight supplies and some commercial buying, they said.


The U.S. Department of Agriculture announced private export sales of 400,000 metric tonnes of hard red winter wheat for delivery to Iraq in the 2007-08 marketing year. The wheat marketing year began June 1.


Chatter about sales to Iraq has been floating around markets for the last several days, and traders cited talk that Iraq also bought some Australian wheat. U.S. exporters are required to report to the USDA sales of 100,000 tonnes or more of wheat made in the same day to the same destination by 3 p.m. EST the next business day, according to the USDA.


"You did have a little commercial buying lift us off our lows," said Brian Hoops, president of Midwest Market Solutions. "I think a lot of that has to do with the Iraq business. The fact that it was the first (major deal) in five months was a little bullish."


The daily price limit for CBOT wheat will remain US$1.35 on Thursday. The limit will revert back to 60 cents if no wheat futures contract month closes limit bid or limit offer for the next two business days.


Spot-month CBOT and KCBT March wheat will trade without daily limits starting Thursday. The contracts are shedding the limits ahead of first notice day Friday. First notice day is the first day on which notices of intention to deliver actual commodities against futures market positions can be received.


The CME Group Inc. (CME), meanwhile, said it is raising minimum margins for CBOT wheat and mini wheat futures as of the close of business Wednesday. Initial margins for old-crop CBOT wheat will rise to US$5,400 from US$4,050, the exchange said.



Kansas City Board Of Trade


KCBT March and May wheat closed higher, while the rest of the market's contracts were mostly lower. Global supply concerns continued to underpin the market, an analyst said.


Market activity was very volatile and is expected to remain that way in the near term, traders said. Traders will be waiting to see what deliveries are on first notice day, they said.


The KCBT raised minimum margins for wheat futures as of the close of business Tuesday. Initial margins climbed to US$5,625 from US$3,750.



Minneapolis Grain Exchange


MGE wheat futures closed sharply lower as the markets pulled back from a recent run-up to record highs, traders said. MGE March wheat, which has been trading without limits since Monday, ended down US$2.40 at US$20.00. The contract fell by as much as US$5.40 early in the day session before trimming losses.


Although MGE March wheat has low open interest, its losses are still a relevant reflection of weakness in the market, said Greg Wagner, senior commodity analyst for AgResource Company. Open interest in the contract as of the close of business Tuesday was 744 contracts. Open interest is the total number of contracts that haven't been offset by an opposite transaction.


"It still has meaning," Wagner said about MGE March wheat. "There's price discovery going on in there."


Deferred contracts also slumped in a setback, an analyst said. The daily trading limit for MGE spring wheat futures will remain US$2.02 1/2 on Thursday.


The MGE said it will increase margins for old-crop hard red spring wheat futures. MGE old-crop months are March, May and July. The changes take effect at the close of business Wednesday, the exchange said.


Initial margins for old-crop wheat will jump to US$9,750 from US$7,150, the MGE said. Margins for new-crop wheat will remain unchanged.