April 21, 2006

 

US Wheat Outlook on Friday: Down 2-3 cents on US HRW weather, followthrough

 

 

U.S. wheat futures were called to open down 2-3 cents Friday, following weak overnight trade and Thursday's losses, on weather forecasts for possible good rains across key U.S. hard red winter wheat growers Kansas and Nebraska Sunday and early next week, brokers said.

 

"This Thursday, Friday, Saturday (rain event) is turning out to be a little bit disappointing, but the weather bureaus are predicting that Sunday night into Monday and lingering into Tuesday, substantial rain could fall, particularly in the states of Kansas and Nebraska, two states that are still in good shape," said Tim Hannagan, a grain analyst at Alaron Trading.

 

"As Iowa goes for corn, the price of wheat follows whatever is happening in Kansas," Hannagan added. "Nobody wants to be long going into this weekend remembering what happened last weekend, and especially with some of the weather gurus looking for a possible 60%-40% chance for a substantial rain - substantial being maybe up to an inch of rain in the Kansas, Nebraska area."

 

U.S. wheat futures prices dropped sharply this week after traders priced a weather premium into the market amid hot, dry forecast before leaving last Thursday for a 3-day holiday weekend.

 

Outside commodity markets, including a slight rebound Friday in gold, were eyed. The weak U.S. dollar was considered bearish, brokers said.

 

In the overnight e-CBOT session, most-active July wheat at the Chicago Board of Trade closed down 3 1/4 cents at US$3.63 per bushel.

 

"It will take a close (in CBOT July wheat) back above resistance at US$3.75 to provide the bulls with some fresh upside technical momentum," a technical source said. "Bulls do not want to see a weekly low close on Friday. A close below the March low of US$3.51 would produce serious chart damage to suggest another solid leg down in prices in the near term."

 

First resistance for CBOT July wheat was seen at US$3.70 - this week's high - and then at US$3.75. First support was put at US$3.62-this week's low - and then at US$3.60.

 

Kansas City Board of Trade July wheat ended overnight down 5 1/2 cents at US$4.45 per bushel.

 

"This is still a weather market," the technical source said. "Look for higher volatility in the near term, which is typical for serious weather markets in grains. A bullish symmetrical triangle or bullish pennant pattern has formed on the daily bar chart. It will take a close (in KCBT July wheat) above last week's contract high of US$4.71 1/2 to provide the bulls with some fresh upside technical momentum. A close below support at US$4.37 would provide the bears with fresh downside technical momentum.

 

First resistance for KCBT July wheat was seen at US$4.60 - this week's high - and then at US$4.62 1/2. First support was seen at US$4.44 - Thursday's low - and then at US$4.40.

 

The three U.S. May wheat options contracts' last trading day is Friday, and Alaron's Hannagan expected a slight impact due to the expiration.

 

"But the wheat market through about May 20 is concentrating on weather," he said. "Options expiration might have an impact of about 10% of trade."

 

Cash U.S. hard red winter wheat basis bids were steady to firm Friday, with a 2-cent gain in Dodge City, Kan., a 1-1/2 cent gain at the Texas Gulf and a 1-cent gain in Portland, Oregon; soft red winter wheat basis bids were also steady to firm, with a 3-cent gain in St. Louis, Missouri; and spring wheat basis bids were mixed, with a 1-cent loss in Portland, Ore., and a 2-cent gain in Grand Forks, North Dakota, grain merchandisers said.

 

Overnight U.S. wheat export news was quiet.

 

In global wheat news, the head of an Australian grain growers group said high wheat prices could prompt Australian farmers to plant enough wheat this year to reap 24 million metric tonnes.

 

The U.S. Department of Agriculture last forecast an Australian wheat crop of 24 million tonne and the Australian Bureau of Agricultural & Resource Economics predicts a crop totaling 24.5 million tonnes.

 

Australian wheat output for the crop year ended March 31, 2006, reached 25.1 million tonnes following a dry winter.

 

The USDA said 24 million tonnes now represents an average size crop in Australia, even though Abare's historical data shows it would be the fifth largest crop on record. Seven of the past 10 Australian wheat crops have fallen within a 22 million to 26 million tonnes range.