October 23, 2008


US Wheat Review on Wednesday: Wheat falls in line with equities, neighbors



Bearish outside markets - led by a US$5 drop in crude oil and battered equities - facilitated continued losses for U.S. wheat futures Wednesday.


The Chicago Board of Trade December wheat is down 31 1/4 cents at US$5.17 3/4 per bushel and Kansas City Board of Trade December wheat is down 32 1/2 cents at US$5.49 1/2. Minneapolis Grain Exchange December wheat lost 29 3/4 cents at US$5.99 3/4, but still closed at a 4 3/4-cent premium to the March contract.


Crude oil traded below US$67 and the Dow Jones Industrial Average flirted with losses around 400 points, as the dollar exhibited continued strength.


Speculative funds sold an estimated 4,000 CBOT wheat contracts.


"I continue to be a little pessimistic on wheat prices," said John Kruse, managing director of Global Insight's agricultural service. "I don't think they'll fall a tremendous amount more, but there's not a lot of upside because of the increasing world supply."


Supporting ideas that wheat will be in ample supply, the U.K.'s 2008 production is expected to rise 32.6% to 17.56 million metric tonnes, the National Farmers Union said Wednesday. India also expects to meet its own wheat needs.


In addition, Russia expects to grow 22% more grain this year - a total of 100 million metric tonnes - and nearly double exports. Of the 20 million-25 million metric tonnes the country plans to export this year, it already shipped 6.5 million tonnes of wheat.


Questions about Russia's quality, however, were evident when Egypt's state-owned wheat buyer, the General Authority for Supply Commodities, rejected Russian wheat despite its lowest-price tender bid Wednesday.


Instead Egypt opted to purchase 175,000 metric tonnes of French wheat on a free-on-board basis. Venus International won a portion of the Egyptian purchase with French wheat priced at US$192.50, about 2.7% cheaper than the least expensive U.S. product.


"It says to me that the whole world's got wheat for sale; you have to drop your price if you want to sell it," a CBOT floor broker says.


U.S. product is still about US$6-US$7 too high, the broker said. Despite these pressures, Gulf basis holds firm, while the average interior basis is up by 5 3/4 cents for soft red winter wheat.



Kansas City Board of Trade


Ample soil moisture across the Plains is aiding germination and slow growth of newly planted winter wheat headed into dormancy, said Cropcast Agricultural Weather, making exception for eastern Oklahoma.


"One inhibiting factor, however, may be the snow expected the next several days across Nebraska and Kansas," the private weather forecasting firm said. "This could put a hold on growth and leave some areas poorly established before dormancy if the snow cover lingers into next week."


The firm also notes that, aside from dryness across South Australia and Victoria, "the overall crop across the country is in better shape than last year."



Minneapolis Grain Exchange


While the price spread in Chicago is close to carry, indicating that back-month contracts have priced in the cost to store the crop, some MGE traders continue "cranking an inverse in the pit," an MGE-based trader said.


Trades were "sporadic" at the MGE Wednesday, another Minneapolis-based trader added, noting he sees continued interest in pushing the December-March spread.


"Mills have decent coverage and continue chewing through the product they bought at higher levels," he said. "Farmers don't care about the spread on the board and there seems to be a lack of supply for spring wheat because the producers are reluctant to sell."


"After US$24, US$6 dollars doesn't seem that high to them, especially when they paid so much more for inputs and fertilizer," he added. "They've got to be getting to [a tight] place with their profit margins."


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