May 10, 2006
US Wheat Outlook on Wednesday: Steady-up 1 cent on HRW weather, funds
U.S. wheat futures were called to open flat to up 1 cent Wednesday on concerns about the U.S. hard red winter wheat crop due to adverse weather and on follow-through fund buying, brokers said.
"Last week's weather hurt the (U.S. hard red winter wheat) crop and we were hoping this week's weather would be better," said Tim Hannagan, a broker at Alaron Trading Corp. "It's not. We're going to price that in."
"The (HRW wheat) quality levels have been very low," he added. "Only 35% of the (winter wheat) crop is in good to excellent, and the three states that could improve - Colorado, Kansas and Nebraska - didn't improve."
Follow-through fund buying was also expected after Tuesday's surge to a two-month high in Chicago Board of Trade July and contract highs in Kansas City and Minneapolis Grain Exchange July wheat futures amid gains in outside precious metal markets.
Lingering support stemmed from this week's tender by India for 3 million tonnes of wheat for July-October delivery, much of which is thought to be sourced elsewhere; a Jordan wheat tender; and talk of possible fresh Iraqi wheat purchases.
Moreover, positioning was expected ahead of Friday's U.S. Department of Agriculture 2006 U.S. wheat production and ending stocks reports.
Analysts on average expected the USDA to report Friday 2006 U.S. all wheat production at 1.9575 billion bushels, down from the 2005 U.S. wheat production of 2.105 billion. U.S. winter wheat production was seen at 1.3730 billion bushels, down from last year's 1.499 billion; hard red winter wheat production was seen at 745 million bushels, down from last year's 930 million; soft red winter wheat production was seen at 359 million, above last year's 309 million; and white wheat production was seen at 258 million bushels, down from last year's 260 million bushels.
Analysts expected the USDA to report 2005-06 U.S. wheat ending stocks totaled 535 million bushels, down from the previous year's 540 million. U.S. wheat ending stocks for 2006-07 were seen at 454 million bushels.
In the overnight e-CBOT session, most-active July wheat closed up 3/4 cent at $3.85 1/2 after hitting a two-month high.
"Prices Tuesday also saw a bullish upside 'breakout' from a choppy trading range on the daily bar chart," a technical source said. "Bulls gained solid technical power Tuesday. The next upside price objective for the bulls is strong resistance at the contract high of $4.00 a bushel."
First resistance for CBOT July was seen at $3.90 - Tuesday's high - and then at $3.94. First support was seen at $3.80 and then at $3.78 1/2 - Tuesday's low.
Kansas City Board of Trade July wheat ended overnight down 1 cent at $4.67 after hitting hit a fresh contract high Tuesday and closing nearer the session low.
"But bulls still have the solid technical advantage," a technical source said.
"Look for higher volatility in the near term, which is typical for serious weather markets in grains," he added. "The next major upside price objective for the bulls is major psychological resistance at $5.00 a bushel. A close below the late-April low of $4.26 would provide the bears with fresh downside technical momentum."
First resistance for KCBT July was seen at $4.74 1/2 - Tuesday's contract high - and then at $4.80. First support was seen at $4.65 - Tuesday's low - and then at $4.62 1/2.
There were 8 deliveries posted Wednesday against CBOT May wheat futures with the last date available of May 3.
Wheat registrations late Monday at the CBOT totaled 1,675 lots, up 3 lots from the previous day.
There were 18 redeliveries of KCBT wheat Wednesday and 10 deliveries of MGE wheat.
Cash U.S. hard red winter wheat basis bids were steady to firm Wednesday; soft red winter wheat basis bids were mostly steady to weak; and spring wheat basis bids were mixed, grain merchandisers said.
In global wheat news, Statistics Canada reported March 2006 wheat stocks totaled 18.8 million metric tonnes, within the range of analysts' estimates.
