January 1, 2006

 

US Wheat Outlook on Tuesday: Up 2-4 cents on possible funds, strong e-CBOT

 

  

U.S. wheat futures were called to open up 2 cents to 4 cents per bushel Tuesday following strong overnight price action and in anticipation of long-only index fund buying this week, brokers said.

 

"Friday's late surge was attributed to index funds," one CBOT broker said. "I would say possibly not - that the buying was year-end book squaring by trend followers, but I'm not going to split hairs. The buyers outnumbered the sellers and it was a strong close."

 

Funds that buy and hold commodities became influential early last year as investors increasingly search for alternatives that will outperform bonds and equities. Commodity traders have noted widespread talk of a successful 2005 for the index funds, which suggests a repeat of last year's early heavy long-only index fund buying at the CBOT.

 

U.S. wheat futures markets were closed Monday in observance of the New Year's Day holiday.

 

In the overnight e-CBOT session, most-active March wheat at the Chicago Board of Trade closed up 3 1/2 cents at US$3.42 3/4 per bushel.

 

CBOT March wheat needs to top Thursday's high at US$3.47 to reignite the bullish momentum, a technician said Tuesday. Beyond there lies a key psychological objective at US$3.50. Support lies at Friday's low at US$3.34 1/2 and then the US$3.32 area, roughly a 38.2% Fibonacci retracement of the December rally.

 

The CFTC reported Friday that speculators for CBOT wheat futures sharply pared their net short position for the week ended December 27. They decreased short holdings by 11,335 lots to hold 89,200 short positions and increased their long holdings by 1,954 lots to hold 57,266 long positions.

 

For CBOT wheat futures and options combined, speculators were short 86,472 lots, down 12,310 contracts from the week before, and long 55,179 contracts, up 2,680 lots from the previous week.

 

For KCBT wheat futures only, speculators for the week ended December 27 boosted their net long stance. They increased their long holdings by 2,415 lots to hold 44,266 long positions and decreased their short holdings by 3,781 lots to hold 4,059 short positions.

 

For KCBT wheat futures and options combined, speculators were long 45,700 lots, up 3,700 contracts, and short 4,157 contracts, down 3,706 lots from the previous week.

 

For MGE spring wheat futures only, speculators for the week ended Dec. 27 also increased their net long position, increasing long holdings by 413 lots to 8,106 lots and increasing short holdings by 14 lots to 933 lots.

 

For MGE spring wheat futures and options combined, speculators boosted their net long position, increasing long holdings by 437 lots to 7,685 contracts and increasing short holdings by 22 lots to 954 contracts.

 

Cash U.S. hard red winter wheat basis bids were mostly steady to mixed Tuesday, with a 5-cent gain at the Texas Gulf and a 2-cent drop in Portland, Ore.; soft red winter wheat basis bids were mostly; and spring wheat basis bids were steady to mixed, with a 3-cent loss in Minot, North Dakota and a 1-cent gain in Portland, Ore., grain merchandisers said.

 

Extremely dry conditions in the southern hard red winter wheat belt continue to worry U.S. wheat traders.

 

U.S. wheat export sales were quiet.

 

In global wheat news, India's wheat plantings totaled 24.3 million hectares in the Nov. 1-Jan. 2 period, compared with 24.1 million hectares in the year-earlier period, the ministry of agriculture said Monday.

 

India's wheat plantings are key this year amid tight supplies and the possibility of imports in the near term.

 

U.S. wheat traders speculated in early December that India would need to import before March, but the Indian government has steadfastly denied that rumor.

 

India's wheat output reached a record 76.4 million tonnes in 1999-2000 but has since seen a steady decline. Against a target of 79.5 million tonnes in 2004-05, the country produced only 72 million tonnes.

 

Argentina should harvest 11.6 million metric tonnes of wheat in 2005-06, the Buenos Aires Cereals Exchange forecast Monday.

 

This forecast, based on better-than-expected yields in southeastern Buenos Aires Province is up from 11.4 million tonnes previously. The U.S. Department of Agriculture, which has forecast the average yield this season at 2.39 tonnes/hectare, sees final Argentine wheat output totaling 12.1 million tonnes.