January 11, 2008

 

US Wheat Outlook on Friday: Up sharply on USDA report; KCBT to lead

 

 

U.S. wheat futures are expected to rally Friday as the government surprised the markets by pegging 2008 winter wheat seedings below expectations, analysts and traders said.

 

Benchmark Chicago Board of Trade March wheat is called to open 10-20 cents per bushel higher. In e-cbot overnight trading, CBOT March wheat rose 7 3/4 cents to US$8.90 1/4.

 

But Kansas City Board of Trade hard red winter wheat should lead the charge higher, traders said. HRW wheat seedings were down from a year ago, even though prices climbed to new all-time highs in 2007.

 

KCBT wheat could hit limit up, 30 cents higher, traders said. KCBT July wheat, which represents the new crop, should be especially strong, they said.

 

The U.S. Department of Agriculture, in its January crop report, put 2008-09 all winter wheat seedings at 46.610 million acres, well below the average analyst estimate of 48.657 million. In 2007, seedings were 44.987 million.

 

The USDA pegged HRW wheat seedings at 32.5 million, down from 32.94 million in 2007. Traders expected to see an increase in plantings, with the average analyst estimate at 34.883 million, according to a pre-report survey by Dow Jones Newswires.

 

The report is "very bullish" for HRW wheat futures, said Mike Zuzolo, analyst with Risk Management Commodities. HRW wheat is used to make bread.

 

"How in the world can you not get HRW wheat acres above last years, with these price levels?" Zuzolo asked in a market comment.

 

The lower-than-expected wheat seedings raise fears about the possibility of a weather problem hurting final production, a trader said. The wheat industry is banking on a strong crop this year after poor weather slashed global output in 2007 and drained world supplies.

 

The seedings estimates were "bullish for new-crop wheat, without question," said Joe Victor, vice president of marketing for Allendale Inc. Traders are "possibly looking at limit up on the open for Kansas City. It's just a complete shock."

 

Seedings of soft red winter wheat, traded at the CBOT, were seen at 10.5 million, above the average analyst estimate of 9.994 million. In 2007, 8.65 million acres were planted.

 

Despite the larger-than-expected increase of SRW wheat seedings, CBOT wheat futures should be pulled higher by strength at the KCBT and the drop in overall plantings, a CBOT floor analyst said.

 

The USDA said white winter wheat seedings totaled 3.7 million, below the average analyst estimate of 3.844 million. In 2007, 3.397 million acres were seeded.

 

Bear spreading is expected to be a feature, with traders buying the new crop and selling the old crop, or nearby contracts, analysts said.

 

"All wheat seedings came in below the average trade guess for the 19th consecutive year and should produce bear spreading in the wheat market as traders buy new crop wheat values," Brian Hoops, president of Midwest Market Solutions, said in a market comment.

 

The USDA pegged 2007-08 U.S. wheat ending stocks at 292 million bushels, above the average analyst estimate of 274 million. In December, the USDA put stocks at 280 million.

 

As for quarterly grain stocks, the USDA put wheat stocks as of Dec. 1 at 1.128 billion bushels, above the average analyst estimated of 1.116 billion. Quarterly stocks were 1.315 billion as of Dec. 1, 2006 and 1.717 billion as of Sept. 1, 2007.

 

CBOT wheat bulls' next upside price objective is to push and close the March contract above strong technical resistance at US$9.20, a technical analyst said. The next downside price objective for the bears is pushing prices below solid support at US$8.50, he said.

 

First resistance is seen at US$9.00 and then at Thursday's high of US$9.07. First support lies at Thursday's low of US$8.79 and then at US$8.70.

 

At the KCBT, the bulls' next upside price objective is pushing and closing March wheat above solid resistance at US$9.40, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$8.66.

 

First resistance is seen at US$9.00 and then at Thursday's high of US$9.15. First support is seen at Thursday's low of US$8.82 and then at US$8.75.