October 25, 2008
US Wheat Review on Friday: Wheat falls on bearish cue of equities


U.S. wheat futures flirted with positive territory but failed to gain traction on their own Friday and closed lower under pressure from volatile swings in bearish equities and crude oil trading.


The Chicago Board of Trade December wheat ended down 6 3/4 cents at US$5.16 1/4 per bushel, off the day's lows of US$5.03. Kansas City Board of Trade December wheat dropped 6 cents at US$5.47. The Minneapolis Grain Exchange December wheat lost 3 3/4 cents at US$6.01 3/4, maintaining its inverse spread with an 8 3/4-cent premium to the March contract.


Crude oil traded below US$65, and the Dow Jones Industrial Average whipped between losses of several hundred points, as the dollar exhibited continued strength. The Chicago Board Options Exchange's volatility index - used as a measure of investor sentiment - traded at record-high levels, indicating extreme investor skittishness.


Speculative funds sold an estimated 2,000 CBOT wheat contracts.


"Wheat can't afford to have a big rally," said John Kleist, an analyst/broker at Allendale.


Exports may be running ahead of predictions percentage-wise and U.S. product does score quality points, but U.S. exports are facing a "good amount of competition," Kleist adds. "Wheat's trying to keep itself in demand. It's regrettable that it has to go to ever-lower prices to compete, but at some point it will find legs. It's trying to find that delicate balance where price and world supply join at the hip and it can enjoy some recovery or firm consolidation. That's what the market's in search of."


Current price levels should begin to be enticing, noted on CBOT floor broker who has long been calling U.S. wheat too expensive.


"When we finally figure out the world's not coming to an end, they'll probably wish they would have bought on these breaks," he said.



Kansas City Board of Trade


The hard red winter wheat trade was "still hinging on the financials," a KCBT trader said.


"A little buying came into corn an soybeans at the end; but we settled near our mid-range -- the path of least resistance."


"It was a slow trade, but it was interesting to watch the Dow pull us up and down," he added.



 Minneapolis Grain Exchange


"We had a little bid toward the end, but some mills selling spring wheat turned us back," an MGE floor trader said.


Attention in Minneapolis centered on the recommendation of the MGE board of directors to close live pit trading Dec. 19, moving to an exclusively electronic format.


"It's disappointing, but it's been a long time coming," the trader said. "No one's truly shocked."

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