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Wheat, seen overbought, falls by most in a month

(Reuters) — U.S. wheat futures posted their steepest decline in about a month on Tuesday as investors booked profits and made sales on a market that appeared overbought after an 11 per cent rise this month.

A stronger U.S. dollar, potentially dampening commodity exports priced in the greenback, accelerated wheat’s slide early, but closer to midday the dollar had reversed slightly lower.

Corn and soybeans edged down, also on year-end profit taking, but prices were buoyed by concerns about crops in Argentina due to a lack of rain linked to the La Nina weather pattern.

Wheat futures had been on the upswing, rising 11 per cent so far in December, as rain damage to the crop in eastern Australia has turned much milling-quality wheat there into livestock fodder.

The absence of confirmed new U.S. wheat export sales also pressured wheat, along with thoughts that it has been overbought, said Shawn McCambridge, analyst at Prudential Bache Commodities in Chicago.

Wheat “is in need of a cleaning out before we can start to support any kind of upside momentum,” he said.

“The potential is there but we really need to see confirmed sales instead of just potential. That’s the focus right now.”

Chicago Board of Trade (CBOT) wheat for March delivery dropped 21-1/4 cents, or 2.7 percent, to $7.59 per bushel at 11:38 a.m. CST, extending losses from overnight trading (all figures US$). The loss in percentage and absolute terms was the nearby contract’s biggest since Nov. 16.

Technical selling also weighed the market down as the falling March price triggered sell-stops, a trader said.

A series of bearish factors are “ganging up” on wheat, said wheat analyst Dan Manternach at Doane Advisory Services in St. Louis, Mo.

The trade is still unpacking Friday’s bearish U.S. Department of Agriculture report, he said, in which the USDA raised its forecast for U.S. wheat carryover stocks as well as global supplies.

Wheat prices are also sliding at a time when they typically have hit their seasonal top, Manternach said.

Higher-protein wheats traded in Minneapolis and Kansas City, which have been cushioned previously by concerns about too much rain for eastern Australia’s crop and dryness concerns about U.S. hard winter wheat, fell at a slightly faster pace than the Chicago price on Tuesday.

Prices of European milling wheat fell 2.4 per cent to 235.75 euros.

As investors took profits after Monday’s rise, some funds were squaring off positions overnight as the year comes to an end, said Adam Davis, senior commodity analyst at Merricks Capital in Melbourne.

“Weather is still a major concern. If those fundamentals remain into the new year and, combined with fresh money flowing into commodity markets, then clearly that’ll be enough to push this market higher,” Davis said.

Australia, the world’s No. 4 wheat exporter, said it expects 2010-11 wheat shipments to rise 21 per cent to 16.6 million tonnes, a week after forecasting a record crop of 26.8 million tonnes.

Many analysts have estimated that up to 60 per cent of Australia’s wheat crop may be sold as animal feed, up sharply from only 5-10 percent in a normal year, because of rain damage across its wheat belts.

CBOT corn for March delivery eased 2-1/2 cents or 0.4 per cent to $5.86 a bushel after climbing more than 2 percent to one-month highs on Monday in a rally spurred by a weaker U.S. dollar.

January soybeans were down 2-3/4 cents at $12.99-3/4 a bushel, edging back from slight overnight gains.

— Rod Nickel is a reporter with Reuters at its bureau in Winnipeg.

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