June 7, 2006

 

US Wheat Review on Tuesday: Lower on weak outside markets, harvest

 

 

U.S. wheat futures ended lower Tuesday on speculative fund sales, losses in outside inflationary markets including precious metals and crude oil, and strength in the dollar, brokers said.

 

"There is so much more focus on the U.S. economy than there has been in the past, particularly given the fund money that has been involved lately," says Randy Mittelstaedt, a grain analyst at R.J. O'Brien.

 

"There is a much larger financial focus in the markets than purely the grain fundamentals," he added. "We're seeing this flow in and out of the different commodities depending on what the topic of the day is almost, it seems like."

 

Sales also followed the Chicago Board of Trade's raising of its wheat futures and old/new crop spread margins, effective with Tuesday's evening session.

 

Traders are increasingly concerned that this year's sharp rally in CBOT soft red winter wheat futures to a 3-1/2-year top on continuous charts with record open interest amid ample U.S. SRW wheat supplies will end in disorderly liquidation.

 

Finally, U.S. winter wheat harvest weakness, including talk of some better-than-expected early HRW yields, continued to weigh on the market Tuesday.

 

"Yields are 1 to 2 bushels per acre better than farmers had been expecting," Charlie Sernatinger, a grain analyst at O'Connor and Co., told Dow Jones Newswires.

 

CBOT July wheat ended down 13 1/2 cents at US$3.85 per bushel, well below the May 23 high of US$4.33 which was the highest level since September 2002.

 

Speculative funds sold about 10,000 contracts after selling about 5,000 by 1330 EDT, brokers said.

 

CBOT wheat spread trade was also heavy ahead of the July delivery cycle, with Rosenthal Collins and Fimat each spreading 1,500 September/July, brokers said.

 

First notice day for deliveries against the three U.S July wheat contracts is June 30.

 

July is the last month to deliver CBOT SRW wheat with five parts per million vomitoxin, brokers noted.

 

New CBOT delivery specifications, effective with the September delivery cycle, reduce the level of vomitoxin a taker of wheat can request at load-out from five parts per million to four parts per million.

 

Vomitoxin, or deoxynivalenol, a product of Fusarium graminearum, or head scab, can make humans and animals ill. Although vomitoxin wasn't a problem last year with the U.S. soft red winter wheat crop -unlike the spring wheat crop- previous problems prompted the CBOT to develop new vomitoxin specifications for deliverable wheat to be effective as of September 2006. "If someone stops the July wheat, he can't deliver it versus the September contract without an upgraded certificate," one CBOT trader has noted. "Traditionally, elevators have been okay about this, but in theory they could boost charges."

 

Midday spot U.S. HRW and SRW Gulf barge bids were unchanged Tuesday, cash sources said.

 

Brokers also noted the speculative-led rally in CBOT soft red winter wheat futures has resulted in an unusually wide early-harvest basis in southeastern Missouri and northeastern Arkansas - the difference between the CBOT futures price and the cash price paid in those locations.

 

"The soft red winter wheat basis is weak because carryout is large and speculators inflated the price on the (CBOT) futures," Sernatinger said.

 

In global wheat news, traders continued to eye planting reports from Australia and Argentina amid dry weather in parts of those countries' wheat belts.

 

 

Kansas City Board of Trade

 

KCBT July wheat closed down 17 1/4 cents at US$4.78 1/4, below the May 23 high of US$5.22 1/2 per bushel.

 

Spot cash 11% and 14% U.S. hard red wheat basis bids were unchanged Tuesday, according to the KCBT.

 

Harvest of the winter wheat crop in top U.S. producer Kansas continued despite some rain disruptions late Monday, with the U.S. Department of Agriculture reporting 1% of the state's crop had been cut by Sunday.

 

Eighty percent of Kansas' wheat crop had turned as of Sunday, compared to 57% last year and 55% for the five-year average, the USDA said late Monday.

 

Thirteen percent of Kansas' wheat was ripe.

 

 

Minneapolis Grain Exchange

 

MGE July settled down 14 1/2 cents at US$4.50 1/2 per bushel, below the May 23 high of US$4.86 per bushel.

 

Cash spring wheat basis bids were steady to up 15 cents Tuesday, cash sources said. Tuesday's Minneapolis wheat receipts totaled 57 railcars versus last year's 90 railcars. There were 28 durum receipts versus last year's 10 cars.