July 4, 2006

 

US Wheat Review on Monday: New highs at minneapolis grain exchange rally markets

 

 

U.S. wheat futures rallied Monday, led by new contract highs at the Minneapolis Grain Exchange, on concerns that drought conditions in South Dakota and dryness creeping into top producer North Dakota will continue to deteriorate the spring wheat crop.

 

Basis September contracts, MGE wheat settled 14 cents higher at US$5.07, Kansas City Board of Trade gained 8 3/4 cents to US$5.17 3/4 and the Chicago Board of Trade rose 6 cents to US$4.02 a bushel.

 

Many traders were on holiday, thus reducing the markets' liquidity. All futures markets are closed Tuesday for Independence Day and will re-open Wednesday at their regular times. Wheat export inspections, normally released on Monday, will be issued on Wednesday because of technical problems.

 

Wheat participants now expect the USDA to lower its hard red spring condition ratings when it issues its crop progress report at 4 p.m. EDT.

 

"The biggest (HRS) area is North Dakota, and the ratings are declining and it looks like the crop is in trouble," said Brian Hoops, senior analyst and president of Midwest Market Solutions in Yanktonne, S.D.

 

Hoops expects the U.S. HRS crop to decline 2-3 percentage points in the good-to-excellent category, after having fallen 10 points in the last two weeks.

 

While Montana and Idaho growing areas are expected to receive above-normal rains, parched fields in western South Dakota and North Dakota will continue to be very hot and dry, Hoops said.

 

High temperatures in the Dakotas over the weekend reached the low 90s Fahrenheit and they are expected to climb to near 100 degrees next week with little rain in sight.

 

Since the HRS crop is now in its critical heading stage, in which yields are determined, production is expected to be negatively affected, traders and analysts said.

 

The northern Plains drought has likely reduced the effect of higher spring wheat acres and additional old-crop supplies found in the USDA's acreage and stocks reports last Friday, Jerry Gidel, analyst at North America Risk Management Services in Chicago, said in his newsletter.

 

The USDA said spring wheat plantings rose to 14.6 million acres, while wheat's quarterly ending stocks rose 21 million bushels, suggesting lower feed demand than the USDA's 2005-06 estimate of 190 million bushels, Gidel noted.

 

CBOT funds bought an estimated 1,500 wheat contracts as of 1:30 EDT, with Man Financial buying 400 September and 600 December, Prudential Financial buying 500 September and Calyon Financial buying 300 September.

 

Fimat sold a net 200 September, Iowa Grain sold 400 September and J.P. Morgan sold 200 July 2007 contracts.

 

Non-commercial long and short position-holders at the CBOT, essentially the funds, each hold a 15% share of open interest, the Commodity Futures Trading Commission's Commitments of Traders report to June 27 shows. Fund shorts decreased positions by 7,275 to total 68,995 contracts. Fund longs also decreased positions by 3,513 to total 69,134 contracts.

 

Delivery notices against CBOT July wheat totaled 972, with ABN Amro stopping 350, Dowd Wescott at 298 and Tenco at 215, to list the main players.

 

 

KANSAS CITY BOARD OF TRADE

 

KCBT September wheat rose to a one-month high of US$5.21 1/2 and settled at US$5.17 3/4 a bushel, mainly on spillover support from the gains in MGE spring wheat and fund buying.

 

KCBT deliveries totaled 823, with the main stoppers being Man Financial at 407, Frontier Futures at 180, J.P. Morgan at 109 and Shay Grain stopping 79, the exchange reported.

 

KCBT funds added 7,200 long positions to total 64,992, or 41% of open interest, while fund shorts decreased by 825 positions.

 

UBS and J.P. Morgan were early buyers, while FC Stonnee and Man Financial were early sellers.

 

 

MINNEAPOLIS GRAIN EXCHANGE

 

September wheat made a new contract high of US$5.12 and settled at US$5.07 a bushel on the drought concerns.

 

The troubles for the spring wheat crop only add to wheat's problems, after the winter crop was severely affected by drought, a trader said.

 

MGE deliveries totaled 62, with Country Hedging stopping 49 and Goldenberg Hehmeyer stopping 13 notices.

 

MGE longs increased positions to 2,387 to total 16,793, or 34% of open interest, while shorts added just 402 positions.