March 12, 2009

U.S. wheat futures are called up 2-3 higher Thursday, in line with overnight electronic gains following an aggressive sell-off Wednesday.

 

In overnight electronic trading, CBOT May wheat added 2 3/4 cents to US$5.11 a bushel; July wheat gained 3 1/4 cents to US$5.23 1/2. Kansas City Board of Trade May wheat rose 3/4 cent to US$5.61 3/4. Minneapolis Grain Exchange May wheat ended up 2 cents at US$6.07 1/2.

 

Outsides offer mixed support with crude oil and the U.S. dollar both showing gains. Stock index futures are showing modest gains.

 

"Futures moved modestly higher in light volume overnight, trying to recoup some of yesterday's big losses," said Bryce Knorr, Farm Futures senior editor, in a Thursday morning market commentary.

 

CBOT May wheat slid through all near-term resistance as it dropped 24 1/2 cents to US$5.08 1/4 per bushel Thursday, following a 57-million bushel addition to the U.S. Department of Agriculture's 2008-09 wheat ending stocks estimates.

 

Wheat will try for a bounce today, but the burden of any new rally attempts rests "squarely on the shoulders of [the] new crop," Knorr said.

 

He noted that estimates of lower European production in 2009 offered light support.

 

"Open interest in Chicago wheat rose by some 6%, suggesting new selling entering the market following the USDA report," he added.

 

U.S. export sales totaled 399,200 metric tonnes, according to a report released Thursday by the U.S. Department of Agriculture.

 

The sales figure was inline with analyst expectations that ranged from 200,000-500,000 metric tonnes.

 

The 14.6 million bushels shipped in the week ended March 5 included 13.3 million bushels of old crop wheat.

 

Technically, Wednesday's sell-off helped add downside momentum to the bears' near-term advantage, a market technician said, noting prices are still in a two-month-old downtrend on the daily bar chart.

 

Bears are aiming to close May futures prices below solid technical support at the contract low of US$4.84 1/4, the technician said, pegging first support at Wednesday's low of US$5.06 1/2 and then at last week's low of US$4.98 1/2.

 

The bulls are pressing to close May futures prices above solid technical resistance at US$5.44 3/4 a bushel, he said, placing first resistance at US$5.20 and then at US$5.25.

 

Fundamentally, dry weather in the wheat-growing areas of the U.S. Southwestern Plains and China continues to be the primary concern in wheat markets.

 

Wheat deliveries against the CBOT March contract totaled 336 lots. Customer accounts at Fortis Americas and Rosenthal were primary issuers at 100 lots a piece. Rosenthal's house account also issued 101 lots. A customer account at the Astros Division of UBS stopped 184. The last trade assigned was March 11.

 

Japan bought 112,000 tonnes of wheat, including 70,000 tonnes of U.S. product, in a tender concluded Thursday.

 

In global trading news, Iraq is interested in buying around one million tonnes of Australian wheat a year - almost triple the amount it imported in 2008 and up from zero in 2007, trade minister Simon Crean said.

 

Iraq's new government suspended business with the AWB Ltd. (AWB.AU) in 2006 when an official inquiry said it paid kickbacks to secure billions of dollars in grain deals with Iraq between 1999 and 2003 under a U.N. oil-for-food program.

 

In 2008, Iraq took about 348,000 tonnes of wheat from other Australian traders, but exports are nowhere near the 1.2 million tonnes to Baghdad in 2005 before the scandal was uncovered.

 

Meanwhile, Russia and Ukraine are capturing the growth in world wheat demand this year as both countries are projected to export record quantities, the U.S. Department of Agriculture said in its monthly "Grain: World Markets and Trade" report posted Wednesday on the Foreign Agricultural Service Web site.

 

Although most major exporters - except Argentina - have ample exportable supplies, Russia and Ukraine's comparative freight advantages, combined with very aggressive pricing, have enabled them to expand in areas usually dominated by other suppliers, the report said.

 

In the upcoming marketing year, other suppliers are expected to cut production, including the U.S. and European Union producers.

 

European Union wheat production in 2009-10 is forecast at 130.7 million tonnes, down from February's estimate of 132.2 million tonnes and down 7% on the year, according to Strategie Grains' latest figures published Thursday.

 

Baseline projections for U.S. wheat planting in the 2009-10 marketing year are 60.5 million acres, down 2.5 million acres from the year earlier period.