May 20, 2008

 

US Wheat Outlook on Tuesday: Seen firmer on overnight follow-through

 

 

U.S. wheat futures are expected to start Tuesday's day session higher following overnight gains, although a purchase of Russian wheat by Egypt could temper bullish enthusiasm, traders said.

 

Benchmark Chicago Board of Trade July wheat is called to start 3 to 5 cents per bushel higher. In overnight electronic trading, CBOT July wheat jumped 7 1/2 cents to US$7.98 1/2.

 

Egypt's state-owned General Authority for Supply Commodities said it bought 60,000 metric tonnes of Russian wheat in a tender, which is "a little bit negative" for U.S. wheat futures, a CBOT floor trader said. Traders said they expected Egypt to buy more wheat in the tender.

 

The buy included two cargoes of 30,000 tonnes each at US$329/tonne, basis cost and freight. The U.S. has a freight disadvantage for sales to Egypt, a trader said.

 

Wheat continues to feel some support from concerns about dryness in growing areas of Australia, analysts said. The previously dry areas of southeast South Australia and western Victoria saw rains during the weekend but look to turn dry for the next week or more, according to DTN Meteorlogix.

 

Australia is one of the world's top wheat exporters. It has struggled with drought for the past two years.

 

In the U.S., condition ratings for winter wheat declined a bit in the U.S. Department of Agriculture's weekly crop progress report, released Monday. Forty-five percent of the crop was rated good to excellent, down two percentage points from the previous week.

 

The decline is not too worrisome as ratings have a historical tendency to drop at this time of year ahead of harvest, an analyst said. The USDA said 49% of the U.S. winter wheat crop was headed, down from the average of 66%.

 

Rainfall and cooler temperatures in the U.S. central and southern Plains will favor jointing to heading wheat, Meteorlogix said. However, the driest areas of the west and southwest may see more wind than rain, the private weather firm said.

 

The bulls' next upside price objective is to push and close CBOT July wheat above psychological resistance at US$8.50 a bushel, a technical analyst said. The next downside price objective for the bears is pushing and closing prices below technical support at last week's low of US$7.49, he said.

 

First resistance is seen at US$8.00 and then at Monday's high of US$8.07 1/4. First support lies at Monday's low of US$7.71 1/4 and then at US$7.49.