Minneapolis wheat stays hot; More volatility ahead

January 27, 2008

   Given the limit moves in Chicago Board of Trade grain and oilseed markets last week — both up and down — the only thing that veteran grain traders are counting on is more volatility for the week starting Jan. 27.

    What’s interesting about last week’s moves is with all the volatility, March corn ended even on the week at 4.98-1/4 a bushel and soybeans dropped $1 a bushel to $12.43 in March soy. CBOT traders expected a downward correction after a run to record highs since the first of the year in nearly all Chicago commodities but the big question is it over?

    “The opinion right now is still mixed as to whether the correction is over or whether it has more to run,” said Mario Balletto, analyst with Citigroup. 

    The exception was the flaming Minneapolis grain market soaring to yet, another all-time high for any U.S. wheat futures contract of $12.67 made in the March. Minneapolis carried CBOT wheat along with it — as the Chicago March contract ended 28 cents higher on the week at $9.33 a bushel.

    This is giving the world grain trade a sneak preview of the main price drama for the first-half of 2008 in the war for acres.

    Export and domestic demand for high-protein wheat, as reflected in the price of Minneapolis hard red spring wheat futures fuels the craziness.

    Friday’s government export report underscored the demand, showing that U.S. hard red spring wheat export shipments reached more than 277 million bushels as of Jan. 17 — surpassing USDA’s spring wheat export forecast of 275 million bushels for the 2007/08 marketing year.

    “It is tight. You’re going to see stocks tighten in Duluth, and when the Lakes open, we’ll lose more,” a Minneapolis trader said late Friday, referring to the grain export terminal on Lake Superior.

    On the domestic side, flour millers began using more high-protein spring wheat in their flour blends starting last fall when MGE wheat futures were trading at a discount to Kansas City wheat. They’ve been reluctant to switch to cheaper varieties ever since, the trader said.


    Most likely, macro economics will be the key driver next week — movements in the Dow, crude and gold markets as well as what the Federal Reserve does regarding rates. Any cut in rates only adds weakness to the U.S. dollar and underpins U.S. export demand.

    On the fundamental side, traders remain focused on South American weather, particularly Argentina, the No. 2 corn exporter and third largest soybean producer. It’s been dry there but it benefited from bigger-than-expected rains on Thursday in the western crop areas and the weekend outlook called for more rains. If realized, the rains would weigh on CBOT corn and soy prices on Sunday trade.

    The other factor is export demand, which remains strong despite historically high prices. The drop in ocean freight helped spark big sales this week, especially soybeans to China, the world’s top soy buyer. That’s been reflected in CIF soy values at the U.S. Gulf. Nearby soybeans traded on Thursday at a 46-cent premium to CBOT March vs a 10-cent discount last week, traders said.

    Late Friday the exchange notified traders that it was once again raising margins to hold positions in Chicago Board of Trade corn and soybean, soybean oil contracts. No doubt this could chase a few more market participants out of the market on Monday. Recently it’s been tough for “short” hedgers, i.e. country elevators to meet the escalating margin calls.

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