May 9, 2008

 

US Wheat Outlook on Friday: Pressured by bearish USDA report

 

 

U.S. wheat futures are called to open steady to lower on Friday, as the market is likely to come under pressure by estimates for huge wheat production gains globally.

 

The wheat market expected to see rises in global production due to strong wheat predictions and that was confirmed in the U.S. Department of Agriculture's world agricultural supply and demand report released Friday morning.

 

Looking to the fundamental supply and demand mechanics, Don Roose, president of U.S. Commodities, called for U.S. wheat futures to be 5-10 cents a bushel lower Friday.

 

The USDA estimated the total U.S. new crop of wheat at 2.392 billion bushels, about 16% higher than U.S. production in 2007-2008.

 

On average, analysts predicted the crop to total 2.298 billion bushels.

 

The report reflected the USDA's first official production estimate for the 2008-09 crop.

 

"They (USDA) had higher wheat (production) numbers than the trade was looking for...a lot of that coming from hard red," said Louise Gartner of Spectrum Commodities. "All wheat production was 80 million (bushels) higher than the average guess. Of course, they are also looking at a record-large world wheat crop.

 

The USDA report supported estimates of a record world harvest of 656.01 million metric tonnes.

 

U.S. exports are expected to drop almost 24% to 975 million bushels from 1.280 billion in the year-earlier period.

 

The report also suggested that more wheat is moving into the feed supply, as feed and residual usage is predicted to rise over three times, to 230 million bushels from 60 million a year earlier.

 

"Corn and beans are going to carry the day and you're going to see enough momentum to carry wheat (futures) higher today, but I don't think wheat is going to be able to sustain rallies, with harvest right around the corner," Gartner said.

 

If the bears can push to close prices at a weekly high Friday, they'll add some fresh upside technical momentum to counter bears' near-term technical advantage, an analyst said.

 

Friday's first resistance is seen at Thursday's high of US$8.44 and then at US$8.50. First support lies at Thursday's low of US$8.09 and then at US$8.00.

 

Hard red winter wheat crop development is behind normal across the central Plains, but as it moves toward harvest they'll see favorable moisture conditions across eastern areas with improving moisture conditions across the west. But dry conditions continue through the southwest where dryland fields continue to suffer, the DTN Meteorlogix weather firm said.

 

Spring wheat planting in the northern Plains is ahead of schedule, except through Minnesota, and the Midwest's soft red wheat area will maintain "generally favorable conditions for wheat except for some disease concerns through Missouri and Arkansas due to wetness," DTN Meteorlogix said.

 

While U.S. weather conditions look favorable for ample domestic wheat production, some concerns are sprouting in Australia.

 

After one of the driest autumns on record across the southern half of the Murray Darling Basin, large areas of eastern Australia could be heading into a period of sustained dry weather or at least below average rains, Michael Coughlan, the head of the national climate center at the government's Bureau of Meteorology, said Friday.

 

Concerns about the dry weather and its impact on the new wheat crop are already likely finding some expression through Australian wheat futures, a broker said.

 

In other news, Brazil's Foreign Trade Council will allow an extra 1 million metric tonnes of wheat into the country duty-free, the local Estado newswire reported Thursday.

 

Also, India's state-run agencies have purchased 18.01 million metric tonnes of wheat from farmers this fiscal year as on Friday, almost double the quantity they purchased a year ago, an official statement said.

 

Wheat purchases by state agencies play a crucial role in determining the quantum of imports India will undertake during a given year.