June 10, 2008

 

US Wheat Outlook on Tuesday: Seen steady-up on spillover after USDA

 

 

U.S. wheat futures are called to start steady to firmer Tuesday on spillover support from neighboring markets following an increase in government projections for 2008 winter wheat production, traders said.

 

In overnight electronic trading, CBOT July wheat was up 3 3/4 cents at US$7.92 1/4.

 

The U.S. Department of Agriculture raised its forecasts for U.S. 2008-09 winter wheat production. All winter wheat production was estimated at 1.817 billion bushels, up from 1.778 billion in May.

 

The increases are fundamentally bearish, but they were not unexpected, traders said. The average of analysts' estimates for all winter wheat production was 1.813 billion and the range of analysts' pre-report estimates was 1.774 billion to 1.85 billion.

 

A forecast for an 8-million tonne increase in new-crop world wheat carryover was "a bit bearish," said Brian Hoops, president of Midwest Market Solutions. However, the USDA's supply/demand report was seen as supportive for CBOT corn, and gains in the neighboring corn market should help lift wheat, said Arlan Suderman, market analyst for Farm Futures.

 

"I think this report reinforces short-term bearish fundamentals, but I don't think wheat goes down when corn is going up," Suderman said.

 

CBOT July wheat prices Monday closed lower and near the session low on profit-taking pressure from recent gains. Price action Friday scored a potentially bullish upside "breakout," but follow-through selling Tuesday from Monday's weak close would produce a "false breakout" from the sideways trading range at lower price levels, a technical analyst said.

 

"Bulls and bears are presently on a level near-term technical playing field," he said.

 

The bulls' next upside price objective is to push and close CBOT July wheat above technical resistance at Monday's high of US$8.38, the technical analyst said. The next downside price objective for the bears is pushing and closing prices below solid technical support at US$7.50.

 

First resistance is seen at US$8.00 and then at US$8.09 1/2. First support lies at US$7.80 and then at US$7.65.

 

Looking at the weather, wet conditions "will impact maturing winter wheat" and the advancing harvest in Texas, Oklahoma and Kansas, DTN Meteorlogix said in a forecast. Another round of rain and thunderstorms in the U.S. northern Plains will continue to build moisture for wheat but may also lead to flooding concerns, the private weather firm said.

 

In Argentina, major wheat areas of southern Buenos Aires are expected to stay mostly dry or see only periodic light showers during the next 10 days, according to Meteorlogix. Rainfall is needed for favorable early growth of wheat.

 

The USDA lowered its forecasts for 2008-09 Argentine wheat production to 14.5 million tonnes from 15 million last month. The kept its estimate for Australia's wheat crop unchanged at 24 million.

 

Additional scattered showers are possible through Australia's southeast and east-central wheat areas during the next few days, Meteorlogix said. There have been concerns about a lack of rain in some crop areas Down Under.