April 16, 2007

 

US Wheat Outlook on Monday: 2-4 cents lower, following overnight losses

 

 

U.S. wheat futures are expected to start Monday's day session on the defensive after losses overnight and in a step back from strong gains on Friday, traders said.

 

Benchmark Chicago Board of Trade May wheat is called to open down 2 to 4 cents per bushel.

 

In e-cbot trading, CBOT May wheat slipped 3 3/4 cents to US$4.74 3/4, and CBOT July wheat was down 1 1/2 cents at US$4.88 1/2.

 

Market participants are waiting for the U.S. Department of Agriculture to release its weekly crop progress report at 4 p.m. EDT (2000 GMT), traders said. The report is expected to show a 6 to 10 percentage point drop in the amount of U.S. winter wheat rated in good-to-excellent condition after a hard freeze last weekend, traders and analysts said.

 

A week ago, the USDA reported 64% of the winter wheat crop was in good-to-excellent condition as of April 8, down from 71% as of April 1.

 

The decline would be bullish, although prices already rallied on expectations for the drop on Friday, a CBOT floor broker said. Also, there are some ideas that cool weather in the U.S. Plains during the weekend will help the hard red winter wheat crop bounce back, he added.

 

Moderate to heavy snow and rain during the weekend will maintain soil moisture for jointing to reproductive wheat in the Southern Plains, according to DTN Meteorlogix.

 

"We are in a 'wait-and-see' period as more accurate freeze damage assessments surface," an analyst said. "I will be flying under the radar the next three days."

 

Losses in the CBOT corn market also would drag on wheat, the broker added. CBOT May corn ended the overnight session down 6 1/4 cents at US$3.62 3/4 per bushel.

 

Still, bulls have gained the solid near-term technical advantage in the wheat market amid the cold snap in the Plains recently, a technical analyst said. Bulls' next upside price objective is to close CBOT July wheat above major psychological resistance at US$5.00, he said. The next downside price objective for the bears is closing prices below solid support at US$4.70.

 

First resistance is seen at Friday's high of 4.98 and then US$5.00. First support lies at US$4.85 and then at US$4.80.

 

Non-commercial speculative traders cut short CBOT wheat futures and options positions and boosted long positions in the week ended April 10, the Commodity Futures Trading Commission said in its supplemental report. The traders decreased shorts by 6,213 lots and lifted longs by 1,839 lots. Speculative traders were net short 30,321 contracts, the CFTC said.

 

At the Kansas City Board of Trade, bulls' next upside price objective is closing July wheat prices above major psychological resistance at US$5.00. The bears' next downside objective is closing prices below solid support at US$4.69.

 

First resistance is seen at US$5.00 and then at US$5.05. First support is seen at US$4.90 and then at Friday's low of US$4.86.

 

Non-commercial speculative traders decreased short positions by 642 lots and increased longs by 364 lots, according to the supplemental report. They were net long 17,382 contracts.

 

In other news, there could be some support from an Iraqi tender, an analyst said. Iraq last week closed a tender to buy 100,000 metric tonnes of wheat from the U.S., Australia, Canada, Argentina and Turkey for delivery in April and May, the Grain Board of Iraq said. According to a tender document obtained by Dow Jones Newswires, the closing date for that tender was set at April 10.

 

In international markets, China's wheat prices were lower in the week to Monday as farmers were eager to cash in to prepare for the planting season in April. Prices of average-quality wheat in Henan province were at RMB1,480-RMB1,520 a metric tonne, compared with RMB1,540/tonne (US$31.34) a week earlier.

 

Traders said wheat prices are unlikely to rise significantly ahead of the sales of newly harvested wheat in June, as farmers will continue to sell their stocks to make room for new ones.

 

Weekend showers and showers or rain early this week in China will favor winter crops, including jointing to heading winter wheat in the western areas, Meteorlogix said.

 

Major winter wheat areas in the Ukraine may see some light precipitation during the week but it is also expected to be much cooler.

 

In Australia, meanwhile, planting season is approaching for the next winter wheat crop. Rain is needed through much of this region to replenish soil moisture and irrigation and to recover from long term drought conditions, Meteorlogix said. Showers during the weekend were mostly confined to the southern West Australia region, according to the weather firm.