US Wheat Review on Tuesday: Tumbles on broad-based liquidation

 

 

U.S. wheat futures closed sharply lower on broad-based commodity liquidation amid jitters about the health of the U.S. financial sector.

 

Chicago Board of Trade December wheat closed down 37 cents at US$6.90 a bushel. Kansas City Board of Trade December wheat dropped 29 cents to US$7.34 1/2, and Minneapolis Grain Exchange December wheat sank 34 1/2 cents to US$7.54 3/4.

 

Funds were sellers across commodity markets, unloading an estimated 2,000 contracts of CBOT wheat. Deferred CBOT corn futures closed down the daily, exchange-imposed limit of 30 cents, while soybeans, crude oil and metals also tumbled.

 

Turmoil in the U.S. financial sector continued to bleed into commodities, as investors sought to reduce risk in their portfolios, an analyst said. Traders are on edge following Lehman Brothers Holdings Inc.'s bankruptcy filing, Merrill Lynch & Co.'s agreement to sell itself and insurer American International Group Inc.'s cash crunch.

 

"Folks are just trying to consolidate the risks," said Dave Marshall, an independent commodities broker and marketing advisor. "It looks like that's across virtually all these markets."

 

Technical selling accelerated the fall in wheat, traders said. CBOT December wheat fell below support at US$7.00 a bushel and hit a session low of US$6.86, its lowest price since Nov. 19.

 

The next chart target is to close below US$6.88, an analyst said. Below that, there is trendline support around US$6.36, he said.

 

"A lot of this appears to be technically driven," Marshall said of the fall. "At this point, markets are trying to decide what is real value."

 

 

Kansas City Board of Trade

 

Broad-based selling in commodities pulled down KCBT wheat futures, a trader said. Funds were seen to be liquidating across all the markets, he said.

 

In other news, the Australian Bureau of Agricultural & Resource Economics, or Abare, lowered its production estimate to 22.5 million tonnes, down from 23.7 million in June. The estimate should not have been a "huge shock" to the markets because it was similar to recent private estimates, Marshall said.

 

The U.S. Department of Agriculture last week cut its estimate to 22 million tonnes from its August estimate of 25 million. Dryness has stressed the crop in some areas.

 

Production "can still vary depending on how much rain we get in some of these areas," Marshall said. "It may go higher. It may go lower. The jury's still out."

 

 

Minneapolis Grain Exchange

 

MGE wheat closed sharply lower on spillover pressure and the pullback in commodities. The wheat markets remain "extremely oversold" after losses during the past three weeks, an analyst said. The technical trend remains solidly downward, he said.

 

The spring wheat harvest is wrapping up, meaning no more wheat will be produced in the U.S. this calendar year. Harvest was 92% complete as of Sunday, down from 99% complete at the same time in 2007 and the average of 94%, according to the USDA.