June 6, 2007

 

US Wheat Review on Tuesday: Ends up on tight global stocks, Ukraine

 

 

Anxiety over tight global stocks, crop loss in Ukraine and crop deterioration in the U.S. carried U.S. wheat futures to new contract highs Tuesday, although traders trimmed gains before the close, analysts and brokers said.

 

Chicago Board of Trade July wheat settled 7 cents higher at US$5.27 1/4 per bushel. Kansas City Board of Trade July wheat rose 5 3/4 cents to US$5.10 1/2, and Minneapolis Grain Exchange July wheat ended 3 1/2 cents higher at US$5.36 3/4.

 

CBOT July wheat set a new contract high of US$5.36 during the day session, exceeding the previous high of US$5.31. Commodity funds bought an estimated 3,500 contracts at CBOT.

 

A drought in Ukraine and southern Russia remained supportive to prices as Ukraine officials released a new, higher estimate of crop damage from the dryness, analysts said. The latest estimate said 650,000 hectares of Ukraine's grain crops had been "irreparably damaged" by the drought and that the extent of the damage was likely to increase because about 10 million total hectares had been affected.

 

Production loss in Ukraine and southern Russia is friendly to U.S. wheat because the Black Sea is an aggressive global exporter. Ukraine's government has said it would suspend exports until state reserves are formed, which lifts the value of world wheat supplies and may steer more business to the U.S, analysts said.

 

In the U.S., condition ratings for the winter wheat crop slipped in the U.S. Department of Agriculture's weekly progress report. The USDA said 53% of the crop was in good-to-excellent condition at of June 3, down from 57% the previous week.

 

In Indiana, 36% of the crop was rated in good-to-excellent condition, down two percentage points from the previous week. In Illinois, 32% of the crop was rated in good-to-excellent condition, down 10 percentage points from last week.

 

There are seasonal tendencies for wheat to back track on condition ratings going into harvest, said Dave Marshal, an independent marketing advisor and commodities broker based in Nashville, Ill. Still, the ratings declines reflect unfavorable conditions that have dogged winter wheat this season, he added.

 

"There's too much water in Texas, Oklahoma and Kansas," Marshall said. "There's too much disease in Illinois."

 

There are also concerns about hot and dry weather in China and Australia, CBOT floor traders said. Crop areas of central China had dry weather Monday, with temperatures at near to above-normal levels, ranging from the 70s to upper 80s Fahrenheit, DTN Meteorlogix said.

 

The next five days will not be as mild, with hot and dry conditions seen developing through Monday, with highs ranging from 95 to 105 Fahrenheit, the weather firm said. Weather conditions will favor wheat harvest, but will be stressful for summer crops, Meteorlogix said.

 

In Australia, rain is in store for wheat areas of Queensland and northern New South Wales during the next few days, according to Meteorlogix. The rest of Australia, though, will be dry.

 

Looking forward, some hedge pressure is expected to weigh on prices due to harvest progress, Marshall said.

 

"It's not unusual to see a rally in the first days of harvest, but then (prices have) to reflect those additional supplies coming in," he said.

 

In other news, private analytical firm Informa Economics on Tuesday pegged 2007-08 U.S. all winter wheat production at 1.686 billion bushels, up from its May estimate of 1.604 billion and the UDSA's May estimate of 1.616 billion bushels. Production in 2006-07 was 1.298 billion bushels.

 

Informa estimated soft red winter wheat production at 353 million bushels, compared with the firm's May estimate of 378 million and the USDA's May estimate of 346.7 million. In 2006-07, SRW wheat production was 390.2 million.

  

 

Kansas City Board of Trade

   

Excessive precipitation in the Southern Plains has delayed harvest and continues to be seen as friendly to prices, a CBOT floor trader said. In Oklahoma, 3% of the crop was harvested as of June 3, compared to the five-year average of 23%, the USDA said. In Texas, 10% of the crop has been cut, compared to 25% in 2006.

 

A pattern of scattered, isolated rainfall, bringing totals of up to three-tenths of an inch, is on tap for the Southern Plains for the balance of the week, according to the Meteorlogix forecast. The drier weather will favor wheat ripening and harvest, the weather firm said. However, temperatures for much of the next five days will be variable, ranging from normal to below normal.

 

"This temperature pattern means that drying and ripening of wheat will be slower than desired," Meteorlogix said. "Harvest in many areas of the Southern Plains is already running almost two weeks behind average due to recent wet and cool weather."

 

Informa pegged hard red winter wheat production at 1.095 billion bushels, compared with the firm's May estimate of 984 million and the USDA's May estimate of 1.028 billion. In 2006-07, HRW wheat production was 682.1 million.

  

 

Minneapolis Grain Exchange

  

MGE wheat followed CBOT and KCBT prices into positive territory, but an increase in condition ratings for spring wheat was bearish, a MGE floor trader said. Eighty-five percent of the spring wheat crop was rated in good-to-excellent condition, up from the 79% last week and 69% last year.

 

"Conditions have been almost perfect," the trader said.

 

On June 11, the USDA is scheduled to release its updated wheat production estimates for the 2007-08 marketing year.