October 25, 2007


US Wheat Review on Wednesday: Downtrend, Russia pull markets limit down



U.S. wheat futures closed limit down Wednesday as the markets continued to pull back from record high prices amid bearish news that Russia has no immediate plans to hike its export tariff, analysts said.


Chicago Board of Trade December wheat finished limit down, 30 cents lower, for the second day in a row. The nearby contract settled at US$8.11 per bushel, its lowest close since Sept. 4. CBOT March and May wheat also closed limit down.


Kansas City Board of Trade December wheat settled 30 cents lower at US$8.29 3/4, the contract's lowest close since Sept. 19. Minneapolis Grain Exchange December wheat fell 30 cents to US$8.26, the contract's lowest close since Sept. 21.


The markets have been in a downtrend since prices reached all-time highs earlier this fall, and Wednesday's losses were an extension of that trend, said John Kleist, analyst with Kleist Ag Consulting.


CBOT December wheat hit a high of US$9.61 3/4 on Sept. 28. At the close, CBOT December wheat was trading synthetically around US$8.04, a floor trader said.


Wheat futures rallied Friday and Monday on talk about a potential increase in Russia's wheat export duty, but that was just "a pause in the downtrend," Kleist said.


"Wheat's in a bull death throws, and it has been for a month," he said. "The top we put in December Chicago wheat back in September has remained sturdy. We've been in a downtrend since that time, with some convulsions in between."


Russia's agriculture minister said the government keep its export tariff at 10% for now and only raise it after the country's grain export potential in the 2007-08 marketing year - estimated at 12 million metric tonnes - is exhausted. The tariff is set to be charged Nov. 17 to April 30.


The news killed rumors, circulated Friday and Monday, that the tariff would jump to 30% or even 50%. A lower tariff is seen as bearish for U.S. wheat futures because it means Russia will still be a competitor on the world wheat market.


"With just a 10% duty, Russian wheat will continue to flow unencumbered into the world market," AgResource Company said in a research note. "The desire for hard dollars and historically high world wheat prices was too strong to ignore for the Russians."


CBOT December and March wheat closed limit down Tuesday as traders were unable to confirm the earlier rumors. Those sharp losses should have largely factored in the official statement out of Russia on Wednesday, Kleist said.


Commodity funds sold an estimated 4,000 contracts. Selling was primarily on the screen, although MF Global sold 500 March in CBOT pit trades.



Kansas City Board of Trade


KCBT March wheat ended limit down at US$8.38 1/2. KCBT May wheat ended limit down at US$8.04.


The market had partially factored in Russia keeping its export tariff at 10% by falling sharply lower Tuesday, although the news was still seen as bearish, a KCBT floor trader said. CBOT led the downside with long liquidation, and pulled KCBT wheat futures lower, he said.


soil moisture may decline in the southwest Plains winter wheat areas, DTN Meteorlogix said. So far this planting season, winter wheat soil moisture is generally adequate to surplus after a very rainy summer in the southern Plains, the weather firm said.



Minneapolis Grain Exchange


MGE March wheat ended limit down at US$8.29 1/4. Along with bearishness about Russia, profit-taking and weaker outside markets also weighed on wheat futures Wednesday, a MGE floor trader said.


"All that outside influence is essentially pressuring wheat," said Joe Victor, vice president of marketing for Allendale. "The demand is still good, no matter which way you slice it."


The U.S. Department of Agriculture is slated to release weekly export sales data at 9:30 a.m. EDT Thursday. Analysts estimate sales will be 700,000 metric tonnes to 1.15 million tonnes.


In other news, record high wheat prices combined with extremely favorable seeding conditions are believed to have resulted in winter wheat area in Ontario hitting a new record high, a spokesman for the Ontario Wheat Producer's Marketing Board said. Producers planted roughly 1.5 million acres this fall, up from just under 500,000 acres seeded a year ago, he said.


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