April 17, 2007

 

US Wheat Outlook on Tuesday: Sharply higher on declining crop ratings

 

 

New government crop ratings that show the condition of U.S. winter wheat deteriorated last week are expected to push wheat futures to open sharply higher Tuesday, traders said.

 

Benchmark Chicago Board of Trade May wheat is called to open up 7 to 9 cents per bushel.

 

In e-cbot trading, CBOT May wheat rose 8 3/4 cents to US$4.84, while CBOT July wheat climbed 9 1/4 cents to US$4.97 1/2.

 

The U.S. Department of Agriculture said Monday afternoon that 55% of the U.S. winter wheat crop was rated in good-to-excellent condition in the week ended April 15, down 9 percentage points from a week earlier. The trade had anticipated good-to-excellent crop ratings to decline somewhere from 6 to 10 percentage points after last week's freeze damage, although it is still supportive to actually see the number in print, a CBOT floor broker said.

 

The drop also was at the high end of expectations, he added.

 

"Conditions for wheat continue to slide," the broker said.

 

In Kansas, the nation's largest hard red winter wheat producing state, 36% of the crop was rated in good-to-excellent condition, down from the 55% reported a week ago. In Texas, 62% of the crop was rated in good-to-excellent condition, compared to 69% a week ago.

 

In the soft red winter wheat producing states, Illinois' soft red crop was rated 28% in good-to-excellent condition compared with last week's 56%; Arkansas' crop was rated 28% good-to-excellent versus 54% last week; Indiana's crop was rated 39% good-to-excellent, down from last week's 51% rating; and Missouri's crop was 10% in good-to-excellent condition compared with 46% last week.

 

Soft red wheat futures are traded at the CBOT, while the Kansas City Board of Trade trades HRW futures. SRW wheat is baked into pastries and snack foods, and HRW wheat is used to make bread.

 

"Chicago wheat was really hit hard," a CBOT floor trader said.

 

The bulls' next upside price objective is to close CBOT July wheat above solid resistance at last week's high of US$4.98, a technical analyst said. The next downside price objective for the bears is closing prices below solid support at US$4.70.

 

First resistance is seen at Monday's high of US$4.93 1/2 and then US$4.95. First support lies at Monday's low of US$4.86 and then at US$4.82 1/2.

 

At the KCBT, the bulls' next upside price objective is closing prices above solid chart resistance at last week's high of US$4.99, the analyst said. The bears' next downside objective is closing prices below solid support at US$4.80.

 

First resistance is seen at Monday's high of US$4.95 1/2 and then at US$4.99. First support is seen at Monday's low of US$4.89 and then at US$4.85.

 

Along with concerns about the condition of the U.S. crop, there is also some chatter about possible global production problems, traders said. Major winter wheat areas of the Ukraine, for example, may see some light precipitation during the week but not enough to reverse the recent drying trend, DTN Meteorlogix reported.

 

In Australia, planting season is approaching for the next winter wheat crop, and rain is needed through much of this region to replenish soil moisture and irrigation and to recover from long term drought conditions, Meteorlogix said. Tuesday's long range charts suggest a chance for showers in the east early next week, according to the weather firm.

 

In other news, Japan said it was seeking 145,000 metric tonnes of wheat in a routine tender to be concluded Thursday for delivery sometime in June. The tender includes 80,000 tonnes of U.S. wheat.