February 27, 2008

 

US Wheat Outlook on Wednesday: Sharply down on overnight follow-through

 

 

U.S. wheat futures are expected to start Wednesday's day session deep in negative territory after a severe pullback overnight and amid ideas the markets may be running out of steam, traders said.

 

Chicago Board of Trade May wheat is called to open sharply lower to limit down, or US$1.35 lower. In overnight electronic trading, CBOT May wheat ended US$1.35 lower at US$10.79 1/2.

 

The overnight setback followed a limit-up close Tuesday. Several CBOT wheat contracts Tuesday rose the exchange-imposed limit of 90 cents, inspiring an increase of the daily ceiling to US$1.35.

 

KCBT and MGE wheat futures also ended limit up Tuesday. As of Wednesday, the daily limit at the KCBT is US$1.35, up from 90 cents Tuesday, while the MGE limit is increased to US$2.02 1/2 from US$1.35.

 

Traders shouldn't read too much into the big losses overnight or Tuesday's rally, a CBOT floor trader said. The market is trading at lofty levels and needed to catch its breath overnight after a recent run-up to all-time highs, he said.

 

CBOT May wheat overnight set a new record high of US$12.89, exceeding the pervious limit of US$12.14 1/2 set Tuesday. The contract had a huge trading range overnight, and volume was strong.

 

The U.S. Department of Agriculture on Wednesday announced private export sales of 400,000 metric tonnes of hard red winter wheat for delivery to Iraq in the 2007-08 marketing year. The wheat marketing year began June 1.

 

Chatter about sales to Iraq has been floating around the markets for the last several days, and traders said word is that Iraq also bought some Australian wheat. U.S. exporters are required to report to the USDA sales of 100,000 tonnes or more of wheat made in the same day to the same destination by 3 p.m. EST the next business day, according to the USDA.

 

In other news, Japan's Ministry of Agriculture said it will not seek imported wheat in a tender this week. The official didn't give any reasons for the decision, but traders said it was likely due to surging prices.

 

Japan's Ministry of Agriculture, the country's sole wheat importer, buys most of the wheat through weekly tenders. Wheat prices have soared on tight global supplies, particularly of high-protein spring wheat traded at the MGE.

 

The Russian government, meanwhile, is planning to extend the term of the current grain export duty until July 1 from the previously planned date of April 30, according to the Agriculture Ministry's press service. He said extending the term of the quota would, "ensure sufficient grain stocks on the domestic market, while protecting the Russian grain market from price jumps on the world market." The Russian government imposed a 40% export duty on wheat Jan. 29. There also is a 10% export duty on barley.

 

Chicago wheat bulls' next upside price objective is to push and close July futures prices above major psychological resistance at US$12.00, a technical analyst said. The next downside price objective for the bears is pushing prices below psychological support at US$11.00. First resistance is seen at Tuesday's contract high of US$11.36 1/2 and then at US$11.50. First support lies at US$11.00 and then at US$10.50.