October 6, 2007


US Wheat Review on Friday: Mixed; spreads boost CBOT, kansas city board of trade July



Profit-taking and active bear spreading pressured old-crop U.S. wheat futures Friday as new-crop Chicago Board of Trade and Kansas City Board of Trade July wheat rose, analysts said.


CBOT December wheat tumbled 16 cents to US$8.90 per bushel, down 49 cents on the week. CBOT July wheat climbed 7 1/2 cents to US$6.86 1/2, up 5 1/2 cents on the week.


KCBT December wheat fell 15 1/2 cents to US$8.94 1/2, and KCBT July wheat jumped 5 1/2 cents to US$6.92 1/2. Minneapolis Grain Exchange December wheat ended down 12 3/4 cents to US$8.90 3/4.


The old-crop/new-crop spread tightened at the CBOT and KCBT amid ideas the December contracts were trading at too big of a premium to the July, analysts said. Ideas that CBOT December wheat may have topped out after pricing in bullish supply and demand news also prompted traders to take some profits out of the old crop, they said.


"If you've got any kind of fear at all that the old crop is peaking out, you're going to start unwinding those spreads," said Dale Durchholz, senior analyst for AgriVisor.


A sale of 200,000 metric tonnes of hard red winter wheat to Algeria for delivery in the 2008-09 marketing year also encouraged ideas that new-crop wheat was a good value, an analyst said. The wheat marketing year begins June 1.


Aside from the business with Algeria, there was not much fresh news to feed the bulls, traders said. The markets continue to watch conditions in Australia, but concerns about yield losses due to drought are largely priced in, they said.


Forecasts for rain in parched Australian growing areas were seen as slightly bearish. Southeastern Australia's wheat growing areas next week have their best chance for rainfall in months, while Western Australia may see showers Sunday night, according to T-Storm Weather.


One weather model predicts fairly widespread rainfall of 1/4 to 1/2 inch in Western Australia, although T-Storm said a weaker system will probably bring around 1/5 to 1/3 inch. Locally higher totals are possible, the private weather firm said in an update to its daily forecast.


"Although this (rain) should provide some benefit, more will be needed and another period of drier weather should quickly begin early next week," T-Storm said in the update. "Additionally, we suspect that some wheat is entering the maturation phase, which may limit full benefit of rain."


Commodity funds sold an estimated 2,000 contracts at the CBOT. Most of the trade was on the screen, although RJ O'Brien bought 300 December in the pit and UBS sold 300 March.


Trading was choppy during the day session. CBOT December wheat fell sharply late in the session and trimmed losses slightly after hitting it 20-day moving average of US$8.88 1/2, a trader said.



Kansas City Board of Trade


KCBT December wheat ended down 34 3/4 cents on the week. KCBT July wheat ended up 3 1/2 cents on the week.


Bear spreading and the HRW wheat sale to Algeria helped boost KCBT July wheat, a floor trader said. Most of the trading was on the screen, and activity on the floor was relatively quiet, he said.


Algeria's decision to buy wheat for delivery in 2008-09 may have been a red flag that the old crop was trading at too high of a premium to the new crop, Durchholz said. The trade will continue looking for subtle signs on whether the December contract has peaked, he said.


In other news, a cold front is expected to bring more moisture into parts of the U.S. central and southern Plains, DTN Meteorlogix said. Dry, wheat-growing areas of southeastern Kansas might get some rain, the weather firm said.


Most of the trading during the day session was on the screen, and activity of the floor was relatively quiet, the KCBT floor trader said. Trading continues to be volatile at lofty prices, he said.



Minneapolis Grain Exchange


MGE December wheat ended down 15 cents on the week.


Profit-taking dragged MGE wheat lower after the contract showed strength earlier in the week, a floor trader said. MGE should continue to gain on CBOT and KCBT amid strong commercial demand for spring wheat and concerns about tight supplies, an analyst said.


Next Friday, the U.S. Department of Agriculture is slated to release its October production and supply/demand report. The wheat markets will be focusing on world production and stocks numbers, Durchholz said.