February 15, 2008

 

US Wheat Outlook on Friday: Higher on follow-through buys; MGE leads

 

 

Follow-through buying and continued leadership from the Minneapolis Grain Exchange should help pull U.S. wheat futures higher at the start of Friday's day session, traders said.

 

Benchmark Chicago Board of Trade March wheat is called to open 10 to 15 cents per bushel higher. In overnight electronic trading, CBOT March wheat ended up 10 3/4 cents to US$10.42 3/4.

 

Kansas City Board of Trade March wheat overnight climbed 21 cents to US$11.15. Minneapolis Grain Exchange March wheat soared US$1.07 to US$19.60, the highest price ever for a wheat contract traded on a U.S. exchange.

 

Nearby MGE March wheat should continue to be the leader of the wheat markets amid steady demand for spring wheat and fears about tight supplies, analysts said. The daily trading limit for MGE wheat Friday was increased to US$1.35 from 90 cents after two old-crop contracts Thursday closed limit up, or 90 cents higher.

 

All three U.S. wheat exchanges now have different daily trading limits. Limits are 60 cents for CBOT wheat and 90 cents for KCBT wheat. All wheat traders should continue to watch the Minneapolis wheat market, a technical analyst said.

 

Japan, which has helped fuel the MGE's spring wheat rally through its weekly tenders, said it will increase the price at which it sells wheat to flour millers by 30% from April 1. Japan buys around 5 million tonnes of wheat every year, mostly from the U.S., Australia and Canada, usually through weekly tenders. The government is the sole wheat importer in Japan.

 

There was not much other fresh news out overnight, but follow-through buying should offer early support, traders said. Opening price moves have been respecting the overnight activity lately, a CBOT floor broker said. The markets may take a breather, with traders reluctant to press prices too much ahead of the weekend, a trader said.

 

There are some early technical clues that a market top is in place at the CBOT, the technical analyst said. However, a strong surge higher on Friday would give the bulls some fresh upside technical momentum and repair some recent near-term chart damage, he said.

 

CBOT wheat bulls' next upside price objective is to push and close the July contract above resistance at US$9.69, the analyst said. The next downside price objective for the bears is pushing prices below solid support at US$9.16, he said.

 

First resistance is seen at Thursday's high of US$9.43 and then at US$9.52. First support lies at Thursday's low of US$9.26 and then at US$9.16.

 

At the KCBT, big gains on Friday would begin to repair recent near-term chart damage, but recent price action is still a technical clue of a market top being in place, the analyst said. The bulls' next upside price objective is pushing KCBT July wheat above resistance at US$10.18 1/2, he said. The bears' next downside objective is pushing prices below solid support at US$9.88.

 

First resistance is seen at Thursday's high of US$10.11 and then at US$10.18 1/2. First support is seen at Thursday's low of US$9.95 and then at US$9.88.

 

In the U.S. central and southern Plains, a significant upper level low moves across Texas before merging with the deepening trough over the Mississippi river valley later this weekend, DTN Meteorlogix said. That means there is a good chance for beneficial rains for the Texas and Oklahoma wheat areas, the private weather firm said. Affected areas should include at least some of and possibly all of the Texas Panhandle and the south-central and east Kansas wheat areas, the firm said.

 

In other news, European Union licenses to export soft wheat rose 212,000 metric tonnes for the week ended Feb. 12, E.U. data showed Friday. This brings the total for 2007-08 to 4.069 million tonnes as of 33 weeks into the campaign. Meanwhile, licenses to import soft wheat climbed just 82,000 tonnes on the week for a marketing year total so far of 3.883 million tonnes. That makes the E.U. a net soft wheat exporter of 186,000 tonnes for the year so far.

 

India's federal government, meanwhile, has asked provinces to increase their wheat procurement during the crop marketing year starting in April from the average 14 million-15 million metric tonnes in order to build up stocks, a government official said. The official said the procurement target of wheat buys for the provinces during the coming year could be as high as 20 million tonnes. Low procurement of wheat at around 12 million tonnes last year had made the country rely on imports of the grain despite high global prices.