January 27, 2006

 

US Wheat Outlook on Friday: Mixed; support from soy, funds

 

 

U.S. wheat futures were called to open mixed Friday, with support from calls for a 7-10 cent higher open in Chicago Board of Trade soybean futures and the possibility that speculative fund buying may show up, brokers said.

 

Saturday's expected closing of a tender by the Iraqis for one million tonnes of optional origin wheat was thought to be priced into Kansas City Board of Trade hard red winter wheat futures which set new contract highs this week.

 

Moreover, traders thought that the tender results might not be reported for days to a couple of weeks.

 

"We have the general assumption out there that a very large majority of the tender will come to the U.S. and be done with hard red winter wheat," said Shawn McCambridge, a grain analyst at Prudential Financial. "I'm not totally convinced that that's an accurate assumption. So I view that tender at best being neutral (to prices) because it's expected."

 

Traders were also watching whether commodity funds, both trend following and index fund type trade would show up.

 

"If the funds don't show up, I think there is enough selling on the other side that it's going to keep pressure on the market," McCambridge said. "They are going to have to be pretty aggressive to get this price up here today."

 

In the overnight e-CBOT session, most-active March wheat at the Chicago Board of Trade closed up 1/4 cent at $3.44 3/4 per bushel. The 9-day relative strength index for CBOT March was 68, nearing the overbought level of 70, brokers noted.

 

Cash U.S. hard red winter wheat basis bids were steady to weak Friday; soft red winter wheat basis bids were also steady to weak, with a 10-cent loss in St. Louis; and spring wheat basis bids were steady to weak, grain merchandisers said.

 

Traders said they would continue to monitor rain amounts and coverage on Friday and Saturday across parts of the drought-stressed U.S. hard red winter wheat belt.

 

Fears of winterkill in Russia and Ukraine were expected to slip to the back burner as traders acknowledged that the actual damage would be hard to assess until the crop broke dormancy.

 

Overnight U.S. wheat export news was quiet.

 

In global wheat news, Australian producers said they still support the continuation of an export monopoly system for their product, but support is waning for the current monopoly manager, AWB Ltd. (AWB.AU) which is the subject of an ongoing inquiry into whether it breached Australian law by allegedly paying kickbacks to the deposed regime of Saddam Hussein.

 

The news followed the U.S. Wheat Associates' call Thursday for the U.S. Department of Agriculture to reinstate a suspension on AWB, to keep it from participating in U.S.-run export credit programs.

 

USDA lifted the suspension in November after Australia promised to investigate allegations that AWB made illegal payments to Iraq while participating in the United Nations Oil for Food Program.