Tuesday, July 7, 2009

The Debts of the Spenders: US Wheat Exports Capture Speculators' Attention

Specs are already lining up for the seasonal late August - mid-October (prime harvest season) trade. Here is a closer look at the demand story.

Analysts Look For Pickup In US Wheat Export Demand

Demand for U.S. wheat is expected to increase in the coming weeks as winter wheat cutting winds down in areas and importing nations wade back into the market following a drop in prices, analysts said.

It was encouraging for export demand that Egypt’s state-owned wheat buyer, the General Authority for Supply Commodities, bought 60,000 tons of U.S. soft red winter wheat in a tender last week, they said. Egypt, a major buyer on the world wheat market, is known for being “very, very price sensitive,” so its purchase may indicate other countries will also see value in U.S. wheat, said Dan Manternach, ag services director at Doane Advisory Services.

“If even Egypt thinks now is the time to buy, that’s a very good sign,” Manternach said.
Active winter-wheat cutting has weighed on prices lately, and there’s speculation that harvest lows are in place or close at hand. Chicago Board of Trade September wheat traded Monday around $5.25 a bushel, down more than $1.75 from an eight-month high hit on June 1.
“I would have to expect you’re going to see better demand creep into the market,” said Brian Hoops, president of Midwest Market Solutions. “Egypt purchased one cargo from the U.S., and I
would expect they’ll be back in if prices stay cheap.”

Others were more skeptical. A CBOT floor trader said U.S. wheat is still too expensive to be a strong competitor for world-export business and that the sale to Egypt was too small to mean much. Larry Glenn, broker and analyst at Frontier Ag, said the sale was “encouraging,” but U.S. wheat is still “overpriced” on the global market. GASC bought U.S. wheat for $188.99 a ton and French wheat for $189.50 a ton. U.S. wheat was generally priced higher than French or Russian wheat in bids submitted to GASC, according to a breakdown of bids for the tender. U.S. bids, outside of the winning bid, ranged from $193.35 a ton to $202 a ton. French wheat was bid from $185.87 a ton to $197.20 a ton, and Russian wheat was priced from $174 a ton to $185 a ton.

It wasn’t too surprising to see Egypt snub Russia, despite its low prices, following a recent spat between the countries over the quality of Russian wheat, an analyst said. The U.S. is seen as a more reliable supplier than Russia, although concerns about the quality of new-crop U.S.
SRWwheat may encourage buyers to book supplies earlier than normal, he said. Head scab, a fungal disease, has been found on wheat in the Midwest and Southern U.S., according to reports. Also known as Fusarium head blight, head scab is caused by rain during the flowering stage of development and can lower grain quality and yield.

Worries about the availability of good quality U.S. wheat could be prompting buyers to “start to sniff around a little earlier than they normally would,” said Bryce Knorr, market analyst for Farm Futures. “They’ve already started trying to scout out supplies.”

Worries about scab-infected wheat have helped basis levels firm up at the U.S. Gulf, analysts said. Importing countries are “thinking if the basis is firm now, maybe we better lock” wheat in before the markets begin their traditional period of recovery following a seasonal harvest
slump, Manternach said.

“Our prices are more competitive” than they have been lately, he said. “There is some concern about the quality of the new-crop wheat. The basis has been surprisingly strong.”

CBOT wheat could see a seasonal recovery of 40 cents to 60 cents from now until Thanksgiving, Manternach said. Glenn said the markets could recover 30 cents to 50 cents after recent losses.

Source: CME News for Tomorrow
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