May 11, 2007

 

US Wheat Outlook onFriday: 2-3 cents lower on e-CBOT, production, weather

 

 

U.S. wheat futures are expected to start Friday's day session lower on follow-through selling from the overnight, bearish new U.S. production estimates and outlooks for good, global growing weather, floor traders said.

 

However, new government estimates for tight ending stocks and spillover strength could inspire bullish activity, analysts added.

 

Benchmark Chicago Board of Trade July wheat is called to open 2 to 3 cents lower. In overnight e-cbot trading, CBOT July wheat closed down 2 1/2 cents at US$4.79.

 

The U.S. Department of Agriculture pegged global wheat ending stocks for 2007-08 at 113.4 million tonnes, down 6% from 2006/07 and at the lowest since 1981-82.

 

U.S. wheat ending stocks for 2007-08 were estimated 469 million bushels, the second lowest level since 1996-97, according to the USDA. Ending stocks for 2006-07 were reduced 10 million bushels to 412 million, reflecting an increase in the export projection, the USDA said.

 

Along support from tight stocks and increased export projections, wheat should feel spillover support from corn, which is also expected to open stronger on tight carryover estimates, analysts said.

 

"World corn and wheat stocks continue to shrink, and that is supportive for both," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

 

Still, floor traders said that the tight status of U.S. and world stocks was already known. They call U.S. wheat to open 2-3 cents lower.

 

There also could be some pressure from ideas that the U.S. wheat crop is rebounding after a hard Easter weekend freeze, the traders said. The USDA forecast winter wheat production forecast at 1.616 billion bushels, up 24% from 2006 and above the average analyst estimate of 1.587 billion.

 

Hard red winter wheat production was pegged at 1.028 billion bushels, above the average analyst estimate of 974 million and up 51% from a year ago.

 

"The hard red must be coming back (from the Easter freeze) like gang-busters," said Louise Gartner, analyst with Spectrum Commodities. "It sounds like what didn't absolutely (get) killed is rebounding very well. I would say that wheat is going to have a hard time rallying off this numbers."

 

Soft red winter wheat production, on the other hand, is down 11% at 347 million bushels, below the average analyst estimate of 368 million.

 

The USDA pegged white winter wheat production at 240.7 million bushels, up 7% from a year ago but below the average analyst estimate of 245 million.

 

Forecasts for favorable growing conditions also could weigh on prices, some traders said.

 

Warmer, drier weather in the U.S. Southern Plains will help to improve the condition of the hard red winter wheat, traded at the Kansas City Board of Trade, through the weekend, according to DTN Meteorlogix. Cooler and wetter conditions are possible early next week, the weather firm said.

 

In central China, showers Thursday will help ease stress to winter wheat, but more rain is still needed, Meteorlogix said. There may be some shower activity during the next seven days, but there could also be several hot days, the firm reported.

 

Any shower activity in the Ukraine during the next seven to 10 days looks to be mostly light and mainly confined to the west. Rainfall is needed to ease stress to winter wheat, according to Meteorlogix.

 

In Australia, Friday's outlook calls for the chance for significant shower activity returning to South Australia, Victoria and New South Wales during the early or middle part of next week, Meteorlogix said. Rainfall, should it occur, would slow field work and planting but the rain is needed to replenish subsoil moisture after last years drought, the firm said.

 

Moderate to heavy rain is expected through England, north and central France, Benelux, Germany and western Poland during the next five days, according to Meteorlogix. Rain will likely improve the condition of winter wheat after very warm and mainly dry weather during April.

 

The bulls' next upside price objective is to close CBOT July wheat above solid resistance at US$5.00, a technical analyst said. The next downside price objective for the bears is closing prices below solid support at US$4.65.

 

First resistance is seen at Thursday's high of US$4.85 1/4 and then at US$4.90. First support lies at Thursday's low of US$4.78 and then at US$4.75.

 

At the KCBT, the bulls' next upside price objective is closing July wheat above solid chart resistance at US$4.90, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$4.60.

 

First resistance is seen at Thursday's high of US$4.76 and then at US$4.80. First support is seen at Thursday's low of US$4.71 and then at US$4.69.