June 6, 2007

 

US Wheat Outlook on Wednesday: 1-2 cents firmer on momentum, tight stocks

 

 

U.S. wheat futures are expected to start Wednesday's day session stronger, taking their cue from overnight advances and with positive momentum from fears about tight global stocks and potential production shortfalls, floor traders said.

 

Benchmark Chicago Board of Trade July wheat is called to open 1 to 2 cents higher per bushel. In e-cbot trading, CBOT July wheat rose 1 1/4 cents to US$5.28 1/2.

 

There was not much fresh news out overnight, but historically tight stocks remain supportive amid uncertainty about production in key growing areas, traders said. Ongoing concerns about drought in Ukraine and Russia are still friendly, along with heat and dryness in China and Argentina, a CBOT floor trader added.

 

Conditions in Ukraine were mainly dry yesterday with temperatures near to above normal, according to DTN Meteorlogix. The region looks to be drier or much drier than normal during the next seven to 10 days, although temperatures should not be very warm, the weather firm said.

 

"Crop stress to winter and spring crops continues quite high, especially in the east," Meteorlogix said.

 

Hot or very hot temperatures and mostly dry weather in central China will deplete soil moisture for spring planted crops and increase stress to early developing crops, Meteorlogix said.

 

Still, the China National Grain and Oils Information Center said it has raised its 2007 forecast for domestic wheat output to 105 million tonnes from the 101.83 million tonnes it forecast last month. China began its wheat harvest late last month, and had harvested 9.8 million hectares of wheat as of Sunday, accounting for 40% of the country's total wheat planting areas.

 

In Argentina, the weather will stay mainly dry or bring only a few light showers to southern winter wheat areas during the next five days, which will reduce soil moisture for early developing wheat, according to Meteorlogix. Australian wheat areas, meanwhile, will see showers and possible thunderstorms during the next few days in southeast Queensland and northeast New South Wales, Meteorlogix said.

 

The production worries are magnified by forecasts that 2007-08 global stocks will drop to their lowest level since 1981, a CBOT floor broker said. The supply concerns have carried wheat futures to new contract highs in recent session, and bulls have solid upside technical momentum, a CBOT floor broker said.

 

"We've got a bullish story here," he said.

 

A "corrective pullback," however, would not be surprising after the strong recent gains, a technical analyst said. The bulls' next upside price objective is to close CBOT July wheat above solid resistance at Tuesday's contract high of US$5.36, he said. The next downside price objective for the bears is closing prices below solid support at US$5.00.

 

First resistance is seen at US$5.30 and then at the contract high of US$5.36. First support lies at Tuesday's low of US$5.23 1/2 and then at this week's low of US$5.18 1/2.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing July wheat above solid chart resistance at Tuesday's high of US$5.21, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$4.90.

 

First resistance is seen at US$5.18 and then at Tuesday's high of US$5.21. First support is seen at Tuesday's low of US$5.10 and then at this week's low of US$5.03.

 

Precipitation in the U.S. Southern Plains has delayed harvest in parts of Oklahoma and Texas, but hotter, windy weather is on tap for the region and will help to dry fields and improve crop condition somewhat, Meteorlogix said. More thunderstorms may develop during the weekend or early next week, especially from Kansas northward, the firm reported.

 

In other news, Japan is seeking 100,000 metric tonnes of wheat in a tender to be concluded Thursday, an agriculture ministry official said. The wheat is scheduled to arrive sometime from July 26 to Aug. 25.