October 22, 2008


US Wheat Review on Tuesday: Losses led by weaker outside markets



Dropping crude oil and equities markets and a stronger dollar led U.S. wheat futures to continued losses Tuesday, traders and analysts said.


Chicago Board of Trade December wheat fell 14 1/2 cents to US$5.49 per bushel. Kansas City Board of Trade December wheat dropped 13 3/4 cents to US$5.82. Minneapolis Grain Exchange December wheat sank 13 1/4 cents to US$6.29 1/2 and closed at a discount to the March contract.


"There's not much around but the firmer dollar and weaker outside markets and crude oil," a CBOT floor trader said. "I wouldn't sell [wheat] too hard. This market could snap back pretty fast."


Some traders are looking for lower wheat prices atop the collapsing freight index to begin inspiring greater export sales; others say the firm basis levels are keeping U.S. wheat less than competitive with product from the Black Sea region.


"I think the market's going down," said Charlie Sernatinger, vice president of sales at Fortis. "Basis levels are firming up, taking us out of contention with the wheat from the Black Sea region."


But with bargain-basement freight costs, "more business is being done," a CBOT broker said, noting Chinese purchases have been talked about in the last couple days.


Demand for high-quality spring wheat atop the lower freight rates has led to some shipments out of Minnesota, an MGE-based broker added.


Egypt's state-owned General Authority for Supply Commodities will tender Wednesday to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Nov. 16-30 on a free-on-board basis, an official said Tuesday.


U.S. hard red winter, soft red wheat and soft white wheat are in contention with Argentine, Kazakh and Canadian wheat, Nomani Nomani, undersecretary to the vice chairman of GASC, told Dow Jones Newswires.


In addition to competitive export pressure, farmers who locked in higher wheat prices with revenue insurance maintain inspiration to plant wheat, adding more supply to the increasing global stocks, Sernatinger said.


As the futures drop and basis holds firm, "the boys who wanted convergence are starting to get it," he added. "Calendar spreads are tightening up everywhere. It's just the opposite of last year. Last year you bought the board and sold the spread; this year you buy the spread and sell the board."


Speculative funds sold an estimated 3,000 CBOT wheat contracts.



Kansas City Board of Trade


Commercial interest is piqued in the hard red winter wheat trade, but not enough to inspire drastic action.


Wheat at its current values, and below, present opportunity for commercial buyers to supplement holes in their ordering pipeline, MF Global's hard red wheat analysts said in a daily research note.


But, the firm added, "until we see further easing in the Libor rates and/or an uptick in the world ocean freight, there is no reason to reach higher for nearby ownership."



Minneapolis Grain Exchange


Whereas the CBOT and KBCT "tend to keep their spreads at full carry, our spreads are very volatile," said an MGE-based trader.


Traders caught short expecting demand for nearby wheat to slow heading into the winter were caught in a bad position Tuesday, as others pushing a bull spread drove the nearby contract to close at a 2 3/4-cent premium to the March contract.


"Stocks are being drawn down, reflecting good demand," the trader said.


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