March 10, 2010

 

US Wheat Outlook on Wednesday: Seen down on expanding ending stocks

 

 

U.S. wheat futures were poised to fall at the start of Wednesday's day session after government crop data confirmed supplies are large and as traders waited for the results of an Egyptian tender.

 

Chicago Board of Trade May wheat was called to open 3 to 5 cents a bushel lower. In overnight electronic trading, CBOT May wheat slipped 1 cent to US$4.88 1/2.

 

The U.S. Department of Agriculture, in its March supply and demand report, raised its forecast for U.S. wheat ending stocks to a whopping 1 billion bushels from its February estimate of 981 million. Most analysts in a prereport survey had predicted the government would trim its estimate for ending stocks.

 

Traders already knew that supplies were large, but it "definitely" cannot help "the mindset" in wheat to see stocks top 1 billion, said Jerry Gidel, analyst for North America Risk Management Services. Inventories are at a 22-year high.

 

The USDA lowered its U.S. food use estimate 20 million bushels from last month based on the latest mill grind data from the U.S. Census Bureau. Millers are able to extract a large amount of flour from grain, which reduces the need for wheat, and per capita consumption is declining, according to the government.

 

World ending stocks, meanwhile, swelled to 196.8 million tonnes from the USDA's February estimate of 195.9 million. They are at an eight-year high.

 

"This is simply too much wheat," said Mike Zuzolo, president of Global Commodity Analytics & Consulting.

 

Competition for business on the world export market remains intense. The USDA left its total forecast for U.S. wheat exports unchanged from last month at 825 million bushels but raised hard red winter wheat exports 10 million bushels and made an offsetting reduction for white wheat exports.

 

Traders are waiting to see the results of a tender from Egypt's state-owned wheat buyer, the General Authority for Supply Commodities. Egypt, a major buyer in the world wheat market, said Tuesday it was tendering to buy up to 120,000 tonnes of wheat on a free-on-board basis for shipment May 16-31. The U.S. is not expected to win the business because prices are too high, a trader said.

 

The next downside price objective for bears is pushing and closing CBOT May wheat below solid technical support at the February low of US$4.80 3/4, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at last week's high of US$5.26, he said.

 

First resistance is seen at Tuesday's high of US$4.94 1/2 and then at US$5, the analyst said. First support lies at Tuesday's low of US$4.88 and then at US$4.80 3/4, he said.