May 23, 2006

 

US Wheat Outlook on Tuesday: Up 1-3 cents On US crop ratings, forecasts

 

 

U.S. wheat futures were called to open up 1-3 cents Tuesday on a sharper-than-expected deterioration in the U.S. winter wheat crop's condition and forecasts for lingering hot temperatures that could further damage fields, brokers said.

 

The gains would build on a new contract high set overnight in Chicago Board of Trade July wheat and Monday's fresh rally to a near-10-year top in Kansas City Board of Trade hard red winter wheat futures, they noted.

 

The rally, which has gained widespread speculative appeal, has been built on worries about tight U.S. and global hard wheat supplies following drought in several countries including the U.S.

 

On Monday, the U.S. Department of Agriculture reported that 30% of the nation's winter wheat crop was in good-to-excellent condition, six percentage points lower than the previous week and well below the 52% rating in 2005.

 

Traders and analysts had expected a decline of one to two percentage points.

 

The decline in the conditions was a little bit worse than anticipated, said John Kleist, of Kleist Ag Consulting.

 

"We're very much still in a weather market," he said. "But we had it shook up (almost) last week. When we had the sell-off last week, there was some evidence that we might go back (to trading) the demand side, but not right now."

 

Conditions in top U.S. winter wheat producer Kansas fell another three percentage points in the good-to-excellent category, which was more than anticipated, traders noted.

 

Twenty-two percent of the crop in Kansas was rated in good-to-excellent condition, compared to 25% last week. Seventy-one percent of the crop was reported headed compared to 67% in 2005 and the five-year average of 68%.

 

After above-normal temperatures Monday, scattered showers of 0.1 to 0.5 inch fell overnight in eastern Colorado, western Nebraska and into western Kansas, said Joel Burgio, a meteorologist with DTN Weather.

 

Forecasts called for the possibility of scattered thunderstorms of 0.1 to 0.5 inch over the northern and eastern HRW belt Tuesday, Burgio said. Temperatures were expected to remain above normal, ranging from the upper 80s to the mid-90s through Thursday.

 

Dry weather and temperatures in the upper 80s to 90s were expected on Friday and Saturday, while the six- to 10-day outlook called for above to much-above normal temperatures and near to below-normal rainfall, Burgio said.

 

The USDA also reported Monday that 90% of the U.S. spring wheat crop had been planted, below last year's 93% but above the five-year average of 85%.

 

In the overnight e-CBOT session, most-active July wheat closed up 4 cents at US$4.30 1/4 a bushel after setting a new contract high of US$4.30 1/2 a bushel.

 

"Bulls still have the solid technical advantage," a technical source said. "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 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 was seen at US$4.28 - Monday's contract high - and then at US$4.34. First support lies at US$4.20 and then at US$4.15.

 

Kansas City Board of Trade July wheat ended overnight down 1/2 cent at US$5.17 per bushel.

 

"Bulls still have the solid technical advantage," a technical source said. "Look for higher volatility in the near term. The next major upside price objective for the bulls is closing prices above longer-term resistance at US$5.50 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 wheat was seen at US$5.18 - Monday's contract high - and then at US$5.25. First support is seen at US$5.08 and then at US$5.00.

 

Cash U.S. hard red winter wheat basis bids were steady to firm Tuesday; soft red winter wheat basis bids were steady to weak, with a 17-cent loss in Cincinnati and a 15-cent loss in Evansville, Ind.; and spring wheat basis bids were unchanged, grain merchandisers said.

 

In wheat export news, Japan sought 151,000 tonnes of wheat including 65,000 tonnes of U.S. wheat.

 

In global wheat news, Wheat Australia Ltd. could yet still complete lengthy negotiations for the sale of 350,000 metric tonnes of wheat to Iraq, which is considering cutting an unacceptable clause from a supply contract, Agriculture Minister Peter McGauran said Tuesday.

 

The Grain Board of Iraq expressed surprise Monday at news that Wheat Australia hadn't been able to agree on a contract to supply the wheat.

 

The price in the contract was fixed at US$190 a metric tonne early in the negotiations, which have been underway for two months, but the global price for wheat has risen at least US$15/tonne since.