May 29, 2007

 

US Wheat Outlook on Tuesday: 3-5 cents down on e-CBOT, pullback from gains

 

 

U.S. wheat futures are expected to start Tuesday's day session on the defensive following losses overnight and in a correction to strong gains last week, traders said.

 

Benchmark Chicago Board of Trade July wheat is called open 3 to 5 cents lower per bushel. In e-cbot trading, CBOT July wheat fell 4 cents to US$4.97.

 

The overnight declines should give wheat its direction in early trading, especially after a run-up in prices on Friday, a CBOT floor broker said. CBOT July wheat rose 10 cents Friday, and there are ideas the rally may have been overdone, he added.

 

Wheat markets at the CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange were closed Monday in observance of Memorial Day.

 

The neighboring CBOT corn and soybean markets also trended lower in overnight trading and could lend some spillover pressure to wheat, an analyst said.

 

After Friday's gains, however, bulls have fresh near-term technical momentum, a technical analyst said.

 

The bulls' next upside price objective is to close CBOT July wheat above solid resistance at US$5.07 1/2, the analyst said. The next downside price objective for the bears is closing prices below solid support at US$4.80.

 

First resistance is seen at Friday's high of US$5.02 and then at US$5.07 1/2. First support lies at Friday's low of US$4.91 1/2 and then at US$4.85.

 

Speculative funds cut long CBOT wheat futures and options positions by 6,017 lots and increased short positions by 4,888 lots in the week ended May 22, the Commodity Futures Trading Commission said in a supplemental report. The funds were net short 21,892 contracts.

 

Bulls also have fresh momentum at the KCBT after Friday's strong close, the technical analyst said. A four-week-old downtrend on the daily bar chart was negated Friday, he noted.

 

The bulls' next upside price objective is closing KCBT July wheat above solid chart resistance at the May high of US$4.93. The bears' next downside objective is closing prices below solid support at the May low of US$4.62.

 

First resistance is seen at Friday's high of US$4.90 and then at US$4.93. First support is seen at Friday's low of US$4.82 1/2 and then at US$4.80.

 

Speculative funds reduced long KCBT wheat futures and options positions long positions by 3,245 lots, shorts by 2,634 lots and were net long 7,025 contracts, according to the CFTC.

 

Looking at fundamental factors for wheat, there remain concerns about dryness in Ukraine, traders said. Light showers fell in western areas during the previous four days, although it was dry in the east, according to DTN Meteorlogix. Southern, eastern and central areas, along with North Caucus Russia, had highs in the range of 90 to 100 degrees Fahrenheit, the weather firm reported.

 

The next five days should bring more hot temperatures with only isolated thundershowers, Meteorlogix said. There is some chance for cooler weather and more showers during Sunday into Monday, the firm said.

 

It was "very hot" and mostly dry in central China during the past four days and that has likely reduced soil moisture and increased stress to developing wheat, Meteorlogix said. Thunderstorms are possible during the middle of this week, but more hot and dry weather is likely by or before next weekend, the firm said.

 

Wheat prices in China were slightly higher in the week to Monday as farmers were reluctant to sell due to the unfavorable weather, industry members said. Dry weather in Henan province will reduce wheat output, said ChinaGrain.cn, a professional Web site for grains and oils information.

 

In Australia, meanwhile, light showers fell through the west during the weekend, but more rain is still needed in northeastern and western areas to help improve conditions for wheat, according to Meteorlogix.

 

Widespread moderate to heavy thunderstorms covered most of Europe during the long weekend period. Showers were also reported through Argentina's southern winter wheat areas during the weekend, Meteorlogix said.

 

Argentina's Agriculture Secretariat said the country's wheat seeding is in full swing with good soil moisture levels aiding planting. Argentina will plant 5.2 million hectares of wheat in the 2007-08 season, down 5.5% from the area dedicated to wheat in 2006-07, according to the Secretariat.

 

In other news, India's federal Food Ministry has yet to make a final decision on State Trading Corp.'s plan to purchase around 306,000 tonnes of wheat from two international companies at US$263.00/tonne, cost and freight included, a senior government official said Tuesday. STC proposed to buy 180,000 tonnes from Glencore International AG and 126,000 tonnes from Alfred C. Toepfer International for delivery before Aug. 15.