April 18, 2006
US Wheat Review on Monday: Kansas city board of trade leads US wheat decline
Kansas City Board of Trade futures led the U.S. wheat markets lower Monday, as speculative traders sold large amounts on ideas the market was overbought and as forecasts called for rain in parts of the drought-stricken southern Plains, traders and analysts said.
Basis May contracts, Chicago Board of Trade futures fell 8 cents to US$3.49 1/2, KCBT futures fell 18 3/4 cents to US$4.37 3/4 and Minneapolis Grain Exchange futures lost 16 3/4 cents to US$4.13 3/4.
Many traders were at a loss to explain the breadth of the selling, however, as some forecasts called for only light amounts of rain this week. Longer-term forecasts call for near- to above-normal rains in the southeastern southern Plains and possibly the south-central areas.
"Funds were big sellers there (in Kansas City) and locals and commission houses were big sellers here (in Chicago), following K.C. That's where they look for their inspiration, and you can't ignore it when the market's 21 (cents) lower," said Vic Lespinasse, floor broker and analyst at AG Edwards in Chicago.
"But there's no rain around, it's just in the forecasts and it's days away," he added.
However, wheat is known for its enormous recuperative power, and it can "come back amazingly well if it gets half a chance," said Lespinasse.
At the same time, he and other market participants agree that Monday's sell-off was overdone, especially considering most analysts expect the U.S. Department of Agriculture to lower the HRW crop ratings in Monday afternoon's weekly crop progress report. The past week saw continued hot, dry conditions in Texas and Oklahoma.
Last week, the USDA said 30% of the winter wheat crop was poor to very poor, while just 41% was good to excellent.
Adding bearish fuel to the fire was news that export inspections totaled just 9.503 million bushels in the week to April 11, compared to 11.338 million the previous week. For the 2005-06 year to date, 853.442 million bushels of wheat have been inspected, down from 910.208 million at the same time in the 2004-05 season.
Weather forecasts for the soft red winter wheat areas of the Midwest call for light showers and drizzle this week, adding to weekend totals that saw 0.50-1.00 inch rains in northern Illinois, northeastern Indiana and Ohio. The SRW crop is developing well and benefiting from recent warm weather and ample soil moisture.
Funds were on both sides of the CBOT market Monday, buying a net 500 contracts as of 1:30 p.m. EDT. Fimat spread 800 July wheat and July corn contracts.
Calyon Financial sold 400 July, Prudential Financial sold 300 July, Rand Financial sold 200 July, O'Connor sold 200 December and FCStonnee sold 300 July.
Goldenberg Hehmeyer bought 800 December and ABN Amro bought 500 May and 600 July. Fimat, Man Financial and UBS each bought 500 July.
KANSAS CITY BOARD OF TRADE
Monday's largest losses were found at the KCBT, with heavy speculative selling paving the way on forecasts for beneficial moisture this week in parts of the southern HRW belt.
Western and north-central Texas and southern Oklahoma could see showers with 0.10-0.50 inch of rainfall Thursday into Friday, DTN Meteorlogix said. The six- to 10-day forecast calls for near- to below-normal rains in the west and north, and near to above-normal rains in the southeast and possibly south-central areas of the southern Plains.
Still, Meteorlogix said that only "scant" showers are expected this week and the crop is expected to decline further after recent high temperatures in the 90s and 100 degrees Fahrenheit late last week.
May wheat hit a five-session low of US$4.35 1/2 on the sell-off and closed part of a gap left open on the charts. That gap now runs from US$4.35 1/2 down to US$4.33, and there may be some technical traders who attempt to fill that gap completely.
ADM sold 1,000 July and 500 May, Frontier Futures sold 700 May and 500 July, Farmers Commodities and Fimat each sold 500 July, Man Financial sold 1,200 July, while Prudential Financial and Refco each sold 1,000 July.
ABN Amro bought 2,500 July and 750 May, Man Financial bought 800 July and Refco bought 800 July.
The May/July spread traded at 5 3/4 to 6 cents.
MINNEAPOLIS GRAIN EXCHANGE
MGE wheat futures hit a five-session low of US$4.13 on the decline, in sympathy with losses in Kansas City and Chicago.
Intermarket spreads were once again active, traders said.
Forecasts for the northern Plains call for showers and thunderstorms and even some snow showers in eastern areas, with below-normal temperatures warming to above normal in all areas by Friday, Meteorlogix said.
Farmers are expected to have made fairly good planting progress last week, after running behind schedule due to flooding and wet conditions.