November 15, 2008


US Wheat Review on Friday: Climbs on short covering; new money seen



U.S. wheat futures finished higher Friday on short covering and new buying amid ideas there is solid support underneath the markets.


Chicago Board of Trade December wheat climbed 16 cents to US$5.54 1/4 per bushel, up 33 1/4 cents on the week. Kansas City Board of Trade December wheat jumped 15 1/4 cents to US$5.93 1/4, up 25 1/4 cents on the week. Minneapolis Grain Exchange December wheat gained 11 1/4 cents to US$6.57 1/2, up 17 1/2 cents on the week.


Speculative money seems to be returning to wheat, as there has been "a pretty significant rise in open interest all week long," said Dave Marshall, an independent marketing advisor and commodities broker. Open interest at the CBOT rose about 12,700 contracts Thursday and about 7,300 contracts Wednesday.


"It looks like new buying to me," Marshall said. "There is this perception that the US$5 area is good support [for CBOT December wheat], worthy of at least taking a chance on. How else do you explain the fact that fundamentals really haven't changed any?"


CBOT December wheat has repeatedly tried to break through support around US$5. The contract hit a weekly low of US$5.05 1/4 on Tuesday.


Wheat climbed during Friday's session, despite weakness in outside markets like crude oil and stocks. The outside markets had been leading the grains lately as funds took money of commodities amid concerns about the economy.


"Today it looks like again we're trying to add some space between the grain markets and the other markets," Marshall said. "It will be very hard to divorce from the crude oil market, though, especially with the corn and the soyoil components. Wheat should be the first to do so."


Crude oil is related to the agricultural markets because corn is used to make ethanol, and soy is used to make biofuels. The markets also sometimes move together because many funds trade in a basket of commodities. Commodity funds bought an estimated 3,000 wheat contracts at the CBOT.



Kansas City Board of Trade


Short covering and the rally in CBOT wheat helped pull KCBT wheat higher, a trader said. There was some new buying interest, despite the losses in outside markets, he said.


Traders didn't focus much on fundamentals, although traders will likely keep an eye on the crop in Argentina. The Rosario Cereals Exchange said Argentina's 2008-09 wheat harvest could be the smallest in more than a decade due to drought and reduced plantings.


Argentina is a major wheat producer in the world and a major exporter. Crop losses in Argentina could shift export demand to the U.S., an analyst said.



Minneapolis Grain Exchange


MGE wheat closed higher with CBOT and KCBT wheat. MGE December wheat ended near its session high of US$6.60.


The December contract closed at a premium to March again after the market eliminated the inverse relationship on Thursday. MGE March wheat Friday closed up 5 1/4 cents at US$6.53 1/4.


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