June 14, 2007

 

US Wheat Outlook on Thursday: 8-10 cents up on strong technical momentum

 

 

U.S. wheat futures are expected to start Thursday's day session 8 to 10 cents higher per bushel on solid advances overnight and bullish technical momentum, analysts said.

 

In e-cbot overnight trading, Chicago Board of Trade July wheat rose 9 1/2 cents to US$5.99.

 

Wheat is technically strong after rallying to new contract highs and 11-year highs for front-month contracts this week, analysts said. There is little technical resistance at the elevated price levels, they added.

 

U.S. futures are also feeding off gains in European markets and vice versa, a CBOT floor analyst said. Euronext.liffe wheat futures soared on the open Thursday to extend this season's rally, setting a new record high for the fourth session in a row.

"Wheat bulls still have solid upside technical momentum and are still looking for more on the upside in the near term," a technical analyst said. "The market is now short-term overbought, technically, and a downside correction soon would not be surprising, either."

 

The bulls' next upside price objective is to close CBOT July wheat above major psychological resistance at US$6.00. The next downside price objective for the bears is closing prices below solid support at US$5.50.

 

First resistance is seen at Wednesday's contract high of US$5.95 and then at US$6.00. First support lies at US$5.80 and then at US$5.75.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing July wheat above psychological resistance at US$6.00. Above that, US$6.25 is the next upside price objective. The bears' next downside objective is closing prices below solid support at US$5.50.

 

First resistance is seen at Wednesday's contract high of US$5.89 and then at US$6.00. First support is seen at US$5.80 and then at US$5.71.

 

Along with support from technicals, wheat also has fundamental strength from concerns about crop loss in the U.S. Southern Plains due to excessive wetness, traders said. Widespread rain and thunderstorms will likely disrupt the hard red winter wheat harvest and be unfavorable to the maturing crop, DTN Meteorlogix said. Local flooding appears likely.

 

Heavy storms over the Dakotas and Minnesota also may lead to local flooding in spring wheat fields on the Northern Plains, Meteorlogix added.

 

Global growing areas, meanwhile, remain too dry. Ukraine and Russia have been suffering from a severe drought. A few thundershowers were reported Wednesday in the eastern Ukraine and it was not quite as hot, although it was drier and a little hotter in North Caucasus Russia, Meteorlogix said.

 

"The pattern still appears to be drier than normal but there could be a few thundershowers in the area from time to time," the firm said.

 

Ukraine is likely to lose 10 million metric tonnes of grain in the 2007 harvest due to the current drought, out of the total harvest of 38 million tonnes forecast earlier by the agriculture ministry, according to a government press service's account of comments from the prime minister. Ukraine's 2006 harvest was 34.1 million tonnes.

 

Officials have indicated Ukraine will ban the export of new-crop wheat as of July 1 until the state builds reserves necessary to avoid shortages on the domestic market.

 

Europe also suffered from dryness this spring, and Strategie Grains on Thursday cut its European Union 2007-08 soft wheat production figure by 2.6 million tonnes from last month to 121.8 million tonnes.

 

In central China, thunderstorms occurred Wednesday in some of the drier areas of the North China Plain, but the coverage was still "somewhat low," Meteorlogix said. A more widespread rain is needed to reverse the recent drying trend, and today's long range charts suggest a better chance for showers and thundershowers early next week, the weather firm said.

 

Australia's western and central wheat areas look to continue mainly dry during the next seven days, increasing stress to early wheat, according to Meteorlogix. The eastern wheat areas, though, may see increasing rain again during that period, especially through the eastern part of the east.

 

Dryness is impacting emergence and early growth of wheat through southern locations of Argentina. Light to moderate rainfall is expected during the next couple of days, the heaviest of which should be in northern and eastern Buenos Aires, Meteorlogix said. The very dry areas of La Pampa and southwest Buenos Aires should see the lighter end of the range.

 

In other news, Japan said it bought 65,000 metric tonnes of wheat, including 25,000 tonnes from the U.S., at a tender concluded Thursday. The wheat is scheduled to arrive sometime in August.

 

Weekly U.S. wheat export sales of 413,100 metric tonnes were above trade expectations of 150,000 to 350,000 tonnes. Sales increases were reported for Nigeria, which bought 122,000 tonnes, and Indonesia, which bought 61,800 tonnes, according to the U.S. Department of Agriculture. Unknown destinations bought 62,000 tonnes.