Wheat futures at the Chicago Board of Trade closed higher on Tuesday as technical strength and fears about tightening world wheat supplies triggered short covering, traders said. Contract highs were hit across the board, and front-month July rose to $5.76 per bushel, the highest spot wheat price in 11 years. Several deferred contracts climbed above $6.
The market continued to digest bullish data released Monday by the US Department of Agriculture, including a projection for 2007/08 world wheat ending stocks to fall to 112.02 million tonnes, the lowest since 1977/78. The drawdown reflects the impact of drought in Ukraine and southern Russia.
"The fact that we've got 30-year lows in inventories is what everybody is looking at right now," Iowa Grain analyst Gavin Maguire said. "Unless we've got great production levels across the whole planet, we're going to get increasingly tight inventories going forward," Maguire said.
CBOT July settled up 9 cents at $5.65, backing off its highs toward the close. September ended up 8-1/2 cents at $5.80-1/4 and December was up 9-3/4 at $5.93-1/2 after reaching a contract high at $6.02-1/4.
Commodity funds bought 7,000 contracts, traders said. Volume for Tuesday was very heavy, estimated by the CBOT at 151,998 wheat futures and 22,559 options. If confirmed in official data, the futures total would be among the top 10 all-time daily totals for wheat volume.
Traders noted that open interest in CBOT wheat fell by more than 5,000 contracts after Monday's rally, indicating that speculators were exiting short positions. Wheat futures at the Kansas City Board of Trade and the Minneapolis Grain Exchange also surged to contract highs.
Reports of disappointing yields in the early harvest of US hard red winter wheat and a 4-point drop in US spring wheat condition ratings added support. USDA said late Monday that 81 percent of the spring wheat crop was rated in good to excellent condition, down from 85 percent the previous week. Winter wheat ratings also declined. USDA said 52 percent of the US winter wheat crop was rated good to excellent, down from 53 percent one week earlier.
The US winter wheat harvest was lagging, with 5 percent cut as of Sunday, behind the five-year average of 10 percent. Rain over the next few days will likely disrupt harvesting in the US Plains, forecaster DTN Meteorlogix said. Also, storms in the Dakotas and Minnesota over the next few days may cause flooding in some spring wheat fields.
On the world front, dryness remains a concern in Ukraine and southern Russia despite some scattered light showers, DTN Meteorlogix said. In export news, Iraq was still in talks on a 50,000-tonne wheat tender, European traders said.
Taiwan millers will tender on June 20 for 95,570 tonnes of US wheat, and Japan said it expected to buy 110,000 tonnes of US, Canadian and Australian wheat at its regular weekly tender.
Egypt's Venus International said it bought 60,000 tonnes of soft US wheat. China's National Grain and Oils Information Centre, a state-run cereals think-tank, said it expected the country's wheat crop in 2007 to be broadly similar to last year at 105 million tonnes.
The CBOT July wheat contract stayed above all key moving averages and the nine-day relative strength index stood at 78 ahead of the open, rising to 80 by the close. Technical traders view an RSI of 70 or higher as one sign of an overbought market.