June 11, 2007

 

US Wheat Outlook on Monday: 10-15 cents higher on bullish USDA report

 

 

U.S. wheat futures are expected to start Monday's day session higher on a bullish government crop report that lowered estimates for global ending stocks and U.S. winter wheat production, traders and analysts said.

 

Benchmark Chicago Board of Trade July wheat is called to open 10 to 15 cents higher per bushel. In e-cbot overnight trading, CBOT July wheat rose 8 3/4 cents to US$5.36 1/4.

 

The U.S. Department of Agriculture, in a monthly supply and demand report, trimmed its estimate for 2007-08 U.S. all winter wheat production to 1.610 billion bushels, down from 1.616 billion last month and below the average analyst estimate of 1.640 billion. The new estimate was on the low end of analysts' pre-report guesses, which ranged from 1.592 billion to 1.686 billion.

 

The report is "bullish for wheat, with the crop coming in a little smaller than last month," said Bill Nelson, associate vice president of AG Edwards & Sons.

 

The USDA pegged hard red winter wheat production at 1.032 billion, up from its May estimate of 1.028 billion but below the average analyst estimate of 1.056 billion. The range of analysts' pre-report guesses was 1.010 billion to 1.095 billion.

 

Soft red winter wheat production was put at 341 million, below the USDA's May estimate of 347 million and the average analyst guess of 350 million. The range of pre-report guesses was 330 million to 364 million.

 

It looks as though unfavorable weather, including a hard freeze Easter weekend, recent heavy rains in the Plains and dryness in some Midwestern SRW wheat states took a toll on the crop, CBOT floor traders said.

 

The USDA estimated white winter wheat production at 219 million, below its May estimate of 241 million and the average analyst guess of 237 million. The new estimate was outside the range of analysts' guesses, which spanned from 226 million to 247 million.

 

The USDA also lowered its estimate for 2007-08 U.S. ending stocks to 443 million bushels from 469 million last month. The average analyst estimate was 490 million. The agency slightly increased its estimate for 2006-07 stocks to 417 million from 412 million.

 

Global 2007-08 wheat ending stocks were pegged at 112 million tonnes down from 113.4 million in June. The USDA increased its estimate for 2006-07 global stocks to 121.95 million from 120.4 million.

 

The USDA cut its new crop production estimate for Ukraine to 14 million tonnes from 17.5 million amid concerns about crop losses from a drought. Analysts had said they expected a decrease of at least a million tonnes.

 

There also should be support for wheat from overnight gains and weather premium in CBOT corn and soybeans, traders said. The USDA report was seen as neutral for corn and soybeans, but forecasts for dryness in the U.S. Midwest corn belt are friendly, they added.

 

Looking at the weather, HRW in the U.S. Southern Plains will see an "unsettled weather pattern" during the next 10 days, which will disrupt the harvest and will be unfavorable to the maturing crop, DTN Meteorlogix said.

 

The weekend was drier and warmer in the U.S. Northern Plains, where spring wheat is grown. Heavy storms that would be unfavorable to developing wheat are expected to return to the region early this week, Meteorlogix said.

 

In Australia, rainfall last week through southeast Queensland and northern New South Wales will help recharge soil moisture for wheat growth, Meteorlogix said. This week looks dry and cool in this area.

 

The region from the east Ukraine and south Russia to the Black Soils region and the Volga valley may see a few scattered thundershowers early this week but overall there is still a very dry weather pattern for the region, the weather firm said. Stressful, hotter weather may develop later in the week, Meteorlogix said.

 

In Argentina, dryness is impacting emergence and early growth of wheat through southern locations, Meteorlogix said. There will be some chance for light rain in the region during the middle of this week but probably not enough to ease dryness concerns, according to the weather firm.

 

In central China, Hot temperatures and mostly dry weather will deplete soil moisture and increase stress to crops on the North China Plain, Meteorlogix said.

 

China's largest wheat producing region, Henan province, had harvested 4.73 million hectares of wheat as of Saturday, or 94% of the wheat it planted, the Zhengzhou Commodity Exchange cited the China National Grain and Oils Information Center as saying Monday. The province planted 5.04 million hectares of wheat this year, the largest area in almost three decades, and accounts for about 27% of China's total wheat production.

 

In other news, Egyptian quarantine authorities rejected a cargo of U.S. soft red wheat worth US$84 million, purchased by state-owned wheat buyer the General Authority for Supply Commodities, or GASC, stating it was infected with insects alien to the country, traders said Monday. State-owned newspaper Al Gomhouriya reported Sunday that health officials rejected the shipment at the Mediterranean port of Damietta when they found insects and poisonous grass.

 

The bulls' next upside price objective is to close CBOT July wheat above solid resistance at the contract high of US$5.36, a technical analyst said. The next downside price objective for the bears is closing prices below solid support at US$5.00.

 

First resistance is seen at Friday's high of US$5.30 1/2 and then at US$5.36. First support lies at US$5.20 and then at Friday's low of US$5.16.

 

At the KCBT, the bulls' next upside price objective is closing July wheat above solid chart resistance at last week'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$5.21 and then at US$5.25. First support is seen at US$5.10 and then at Friday's low of US$5.06.