May 18, 2006

 

US Wheat Outlook on Thursday: Flat-weak on technicals, crude oil

 

 

U.S. wheat futures were called to open flat to slightly weaker Thursday on overbought market conditions after Wednesday's rally to a 9-year high in Kansas City wheat futures and an easing in crude oil futures, brokers said.

 

The 9-day relative strength index for Kansas City Board of Trade July wheat rose to 83 Thursday, while the 9-day RSI for Chicago Board of Trade July wheat was 87 and the same index for Minneapolis Grain Exchange July wheat was 83.

 

A 9-day RSI at 70 or above indicates overbought conditions.

 

The recent rally in U.S. hard wheat futures to a 9-year high has stemmed from concerns about tightening U.S. supplies, brokers noted.

 

The U.S. Department of Agriculture last Friday forecast 2006-07 U.S. HRW wheat production at 715 million bushels, well below the previous year's 930 million.

 

Newswire reports that Argentina may trim its wheat exports were rumored Wednesday and factored into Wednesday's rally, brokers said.

 

"Argentina is usually about the cheapest crop, and they have sold about half of their crops," said Sid Love, of Kropf & Love Consulting.

 

"We were trying to explain this yesterday," he added. "The Argentines may be out of the market until the price goes up. Maybe the wheat board there is bullish."

 

Meanwhile, weekly U.S. wheat export sales of 185,290 million tonnes, below estimates for 200,000 to 400,000 tonnes, were neutral, Love said.

 

"Exports were okay, but the key is what happens in the tenders (Iraq and India) and what happens in Argentina," Love said.

 

India recently tendered for 3 million tonnes of wheat for shipment through October while Iraq this week said it had tendered for 1.5 million tonnes and then added that tenders were cancelled until a new government had been formed.

 

"And we need to see what the Chinese are up to in raising their floor price for wheat. I don't know if it's bearish, but I don't know that they will import more or now," Love said.

 

China will implement minimum purchase prices for wheat in six provinces from June 1 to Sept. 30, the country's top economic planning agency said on its Web site Thursday.

 

The government announced at the beginning of March the minimum purchase price for white wheat to be harvested this year at RMB1,440 a metric tonne and red wheat at RMB1,380/tonne. Wheat prices are currently mostly lower than the minimum purchase price.

 

"With wheat at US$5, I think the key is whether we cut back on demand," Love concluded.

 

Forecasts for hot, dry weather in the U.S. Plains hard red winter wheat belt into next week, a vulnerable development time when a large portion of the crop is filling, should limit substantial losses in U.S. wheat on Thursday, brokers said.

 

In the overnight e-CBOT session, most-active July wheat closed down 1/2 cent at US$4.22 1/2 per bushel.

 

"Bulls still have solid technical power," a technical source said of CBOT July wheat. "The next upside price objective for the bulls is closing prices above solid longer-term resistance at the 2002 high of US$4.34 a bushel, basis nearby futures. It would now take a close below solid support at US$4.00 to provide the bears with some fresh downside technical momentum."

 

First resistance for CBOT July wheat was seen at US$4.25--Wednesday's contract high--and then at US$4.34. First support was put at US$4.15 and then at US$4.07 1/2--Wednesday's low.

 

Kansas City Board of Trade July wheat ended overnight down 3 cents at US$5.03 1/2 per bushel.

 

"Bulls still have the solid technical advantage and gained more power Wednesday by pushing prices above major psychological resistance at US$5.00 a bushel," said the technical source. "Look for higher volatility in the near term. The next major upside price objective for the bulls is longer-term resistance at the 1997 high of US$5.14 a bushel, basis nearby futures. A close below support at US$4.70 would provide the bears with some fresh downside technical momentum."

 

First resistance for KCBT July was seen at US$5.07--Wednesday's contract high--and then at US$5.14. First support was put at US$4.91--Wednesday's low--and then at US$4.86-the bottom of Wednesday's upside price gap.

 

In overnight export news, Japan bought 60,000 tonnes of U.S. wheat in an overall tender of 145,000 tonnes.

 

In other global wheat news, Ukraine's winter wheat crop this year should only total between 11 million and 12.5 million metric tonnes of winter wheat versus last year's 17.68 million tonnes due to adverse weather, according to a statement by the national weather center Thursday.

 

Strategie Grains, a monthly analytical newsletter, on Thursday pegged 2006-07 European Union wheat exports at 13.8 million metric tonnes, up 2 million on the year.

 

Despite the increased exports, the EU still has a chance to post a surplus balance, with Germany, Hungary and the northern EU countries tipping the sheet to a surplus.

 

The report also noted that world wheat stocks were set to decline in 2006-07 to just 20% of annual world consumption, leaving a potentially explosive situation "if there are further downward revisions for the U.S. harvest or if production falls short of current estimates in other important exporting countries."

 

The U.K. exported 147,811 metric tonnes of wheat in March, down 31.4% from the 215,486 tonnes exported in February, U.K. trade data showed. All but 5,288 tonnes of the March wheat exports were to countries within the EU.

 

And the State Trading Corp. Of India Ltd. Said it has received 8 bids for its tender to import 3 million metric tonnes of wheat by October, with Australia's AWB Ltd. (AWB.AU) offering 1.2 million metric tonnes.