US Wheat Review on Monday: Jumps on short covering, spillover support

 

 

U.S. wheat futures jumped Monday on short covering and spillover support from other markets but ended off session highs.

 

Chicago Board of Trade December wheat climbed 19 3/4 cents to US$7.37 3/4 per bushel. Kansas City Board of Trade December wheat climbed 17 1/2 cents to US$7.74, and Minneapolis Grain Exchange December wheat rose 13 1/2 cents to US$7.98 1/2.

 

The markets were due for a bounce after sliding during the past month, an analyst said. CBOT December wheat reached a high of US$9.59 1/2 on Aug. 21.

 

Commodity funds bought an estimated 3,000 contracts in CBOT wheat. Non-commercial speculative funds were net short 39,760 contracts in CBOT wheat futures and options as of Sept. 16, according to a supplemental report from the Commodity Futures Trading Commission.

 

"The market's due for some correction, and clearly we're getting that today," said Louise Gartner, analyst for Spectrum Commodities.

 

Gains in outside markets, including crude oil, and weakness in the U.S. dollar supported wheat gains. A cheaper dollar gives foreign importers more purchasing power.

 

Wheat's gains were "respectable" but the markets will struggle to maintain their strength for much longer, Gartner said. The trade should have a better idea about the size of Australia's crop in two to three weeks, and it's already clear there won't be disaster this year following two years of severe drought, she said.

 

The session high for CBOT December wheat was US$7.57, its highest price since Sept. 8. The area of US$7.57 to US$7.70 will offer "huge resistance" to rallies, while US$6.70 should offer decent support, Gartner said.

 

 

Kansas City Board of Trade

 

KCBT December wheat hit a session high of US$7.92, its highest price since Sept. 8. Strength in crude oil, CBOT corn and soybeans were supportive, along with the weaker dollar, traders said.

 

Dryness in the Southern Hemisphere remains a concern for the market, traders said. Production in Argentina may fall by as much as 25% from the 16 million metric tonnes grown last season, according to the Buenos Aires Cereals Exchange.

 

Still, the markets are not getting too worked up over Argentina's crop troubles because the world is expected to produce a record crop in 2008-09, traders said. The U.S. should not see a bump in demand due to losses in Argentina, which sends most of its exports to Brazil, Gartner said.

 

"The impact would be felt more if the world had tight supplies of wheat, which we don't," she said.

 

 

Minneapolis Grain Exchange

 

MGE December wheat hit a session high of US$8.19, its highest price since Sept. 8.

 

The market was "definitely just following what was going on outside," including the rally in crude oil, a floor trader said.

 

"We just kind of watched the other markets tick up," he said.

 

The spring wheat harvest is "about wrapped up" in the Dakotas, and the market is waiting to see what kind of crop Canada will produce, an MGE trader said. Talk about trouble in the Southern Hemisphere was seen as somewhat supportive after weather problems drained supplies in 2007-08, but "we're not going to run out of wheat," he said.