February 7, 2008

 

US Wheat Outlook on Thursday: Steep gains after overnight record highs

 

 

U.S. wheat futures are poised to start Thursday's day session sharply higher following a rally to record highs overnight, traders said.

 

Benchmark Chicago Board of Trade March wheat is called to open 20 to 30 cents per bushel higher. In overnight electronic trading, CBOT March wheat closed up 25 3/4 cents at US$10.58 3/4.

 

Kansas City Board of Trade and Minneapolis Grain Exchange March wheat overnight surged limit up, or 30 cents higher, with contracts at all three exchanges reaching new all-time highs. KCBT March wheat closed above the landmark level of US$11 for the first time, and MGE March wheat closed above US$15 for the first time.

 

The MGE remains the leader in the wheat market on strong demand for high-protein spring wheat, traded at the exchange, and amid ongoing fears about the potential to exhaust supplies, analysts said. Wheat futures have more upside potential as end users are charging after any remaining supplies they can get their hands on, said Mike Zuzolo, analyst for Risk Management Commodities, in a note to clients.

 

Japan's Agriculture Ministry said it purchased 127,000 tonnes of wheat, including 51,000 tonnes of U.S. dark northern spring wheat and 30,000 tonnes of U.S. hard red winter wheat, in a regular tender, according to a media report. Some end users are looking to HRW wheat, traded at the KCBT, as a substitute for scarce spring wheat, analyst said.

 

The grain bought by Japan is for loading in either April or May, the report said. The purchase falls a short of Japan's plan to buy 172,000 tonnes.

 

In other potentially bullish news, Brazil suspended its wheat import tax until June 30, the Foreign Trade Ministry said. The temporary measure is good for one million metric tonnes of wheat.

 

The move signals that Brazil's government believes Argentina will not be able to fulfill Brazil's needs, a CBOT floor trader said. It could possibly open the door for some U.S. wheat exports to Brazil, he said.

 

Total weekly U.S. wheat export sales of 468,200 tonnes were within trade estimates, which ranged from 250,000 tonnes to 600,000 tonnes. For the week ended Jan. 31, old-crop export sales were 312,900 tonnes and new-crop export sales were 155,300, according to the U.S. Department of Agriculture.

 

New sales for wheat for delivery in 2007-08 were 413,500 tonnes but cancellations/buybacks were 100,700 tonnes, the USDA said in a breakdown of the business. Thirty-five weeks into the marketing year, old-crop export sales are already 97% of the USDA's target for the year.

 

The USDA is slated to release updated supply/demand figures at 8:30 a.m. EST Friday. Analysts expect to see a decline in U.S. wheat carryout and an increase in the export projection.

 

On Thursday, a roll is set to begin at the CBOT that would see positions move out of the March contract and into the May contract, a floor trader said. The roll is supposed to last five days but will not start if the market locks limit up, he said.

 

CBOT wheat bulls' next upside price objective is to push and close the March contract above strong technical resistance at US$10.50, a technical analyst said. The next downside price objective for the bears is pushing and closing prices below major psychological support at US$10.00. First resistance is seen at US$10.50 and then at US$10.63. First support lies at US$10.09 1/2 and then at US$10.00.

 

At the KCBT, the bulls' next upside price objective is pushing and closing March wheat above psychological resistance at US$11.00, the analyst said. The bears' next downside objective is pushing prices below solid support at US$10.40. First resistance is seen at US$11.00 and then at US$11.10 1/4. First support is seen at US$10.50 and then at US$10.40.