March 7, 2006

 

US Wheat Outlook on Tuesday: Steady-1 cent higher on condition decline

  

 

U.S. wheat futures are called to open steady to 1 cent higher Tuesday on a continued deterioration in crop conditions due to warm, dry weather in the southern Plains and steady to slightly higher prices overnight, sources said.

 

In overnight e-cbot May wheat rose 3/4 cent to US$3.80 3/4 and July was unchanged at US$3.91 1/2 a bushel.

 

Monthly crop ratings were issued for the major hard red winter wheat states Monday afternoon, which reflected a decline in conditions.

 

"I'd say (opening calls are) steady to a little bit better in the wheat based off of those crop condition ratings dropping, and I think wheat has the most chance for a rally in here," said Brian Hoops, senior market analyst and president of Midwest Market Solutions.

 

In February, Kansas wheat was 27% good to excellent, Oklahoma was just 4% good to excellent and Texas also came in at 4%. All of these states showed continued deterioration of the crop from levels seen in January, due to drought conditions.

 

Oklahoma growing areas received high temperatures and virtually no rain in February, while Texas growers were wondering if winter was transitioning directly to summer with readings in the upper 80s and 90s Fahrenheit in the past week.

 

Kansas saw normal to above-normal temperatures and very light precipitation in February. Freeze damage has reportedly been very light. Eighty-one percent of the crop has no damage, 14% has light damage and 5% received moderate damage.

 

Nebraska wheat conditions also declined from one month ago, with 42% reported good to excellent. This is also down from last year's 60% good-to-excellent rating.

 

DTN Meteorologix weather said the forecast for the central and southern Plains calls for mostly dry weather Tuesday. There's a chance for light to locally moderate rain or snow in the north, showers and thunderstorms east, Wednesday into Thursday, with a chance for light showers elsewhere in the region.

 

Precipitation totals are seen averaging 0.25-1.00 inch and locally heavier through southeastern Kansas, eastern and south-central Oklahoma and north-central Texas during this period.

 

In eastern and northern regions, rainfall of 0.10-0.50 inch is likely. Temperatures are forecast to average above or much above normal Tuesday and Wednesday, near to above normal Thursday. Light showers are seen in the northwest and east during Friday and Saturday. The extended outlook calls for below-normal temperatures and above-normal rains throughout northern and east locations, near to below normal southwest.

 

A technical analyst said CBOT bulls have technical momentum, unless May falls under last week's low of US$3.71. That would provide bears with some fresh downside technical momentum. First resistance is seen at Monday's high of US$3.82 1/2 and then at US$3.86. First support is at Monday's low of US$3.74 and then at US$3.71, last week's low.

 

Bullish traders in May Kansas City Board of Trade still have the upside momentum, unless the market closes under US$4.25. First resistance is seen at Monday's high US$4.41 and then at US$4.45. First support is seen at Monday's low of US$4.34 1/2 and then at US$4.30, last week's low.

 

There were 39 deliveries against Chicago Board of Trade March wheat, with Rosenthal Collins issuing 34 and ABN Amro stopping 36. Minneapolis Grain Exchange wheat deliveries totaled 100, with Country Hedging the only issuer and ADM Investor Services the biggest stopper at 87.

 

As part of China's initiative to raise farmers' incomes, the government said Tuesday it spent RMB4.71 billion (US$585.65 million) so far on subsidies for spring plowing in 2006, RMB3.67 billion of which were subsidies for high-quality seeds. It also spent RMB540 million on farm machinery subsidies, and RMB500 million on soil examination to ensure the application of appropriate fertilizers.

 

In other news, India's regulations on imported wheat are causing it to spend more money on than necessary, industry group U.S. Wheat Associates told Dow Jones Newswires in an interview in New Delhi. The country bought 500,000 of Australian wheat recently and some bidders added a risk premium of around US$35/tonne because of the tender specifications that involve tolerance limits for insecticides and pesticide residues and the total absence of exotic weed seeds.

 

In its routine Thursday tender, Japan is seeking 160,000 metric tonnes of wheat for May 1-31. Taiwan bought 80,240 tonnes of U.S.-origin wheat for an April-May shipment out of the Pacific Northwest.

 

Australian wheat exporter AWB Ltd. has recently sold 1.4 million metric tonnes to India, Yemen, Kuwait and Iran, the company said Tuesday.