June 15, 2007

 

US Wheat Outlook on Friday: 3-5 cents lower on overnight, profit-taking

 

 

U.S. wheat futures are expected to open Friday's day session 3 to 5 cents lower per bushel on follow-through selling from the overnight and profit-taking after strong rallies this week, floor traders said.

 

In e-cbot trading, Chicago Board of Trade July wheat fell 3 1/4 cents to US$6.03 1/4.

 

Wheat is in an overbought condition after climbing to new contract highs and fresh 11-year highs for front-month contracts this week, traders said. Still, there is underlying support from tight global stocks and the deteriorating condition of the U.S. hard red winter wheat crop.

 

CBOT July wheat on Thursday settled above US$6, while KCBT July wheat ended at US$6.

 

"The market is short-term overbought, technically, and a downside correction soon would not be surprising," a technical analyst said.

 

The bulls' next upside price objective is to close CBOT July prices above resistance at US$6.50, the technical analyst said. The next downside price objective for the bears is closing prices below solid support at US$5.50.

 

First resistance is seen at Thursday's contract high of US$6.18 1/2 and then at US$6.25. First support lies at US$6.00 and then at Thursday's low of US$5.90.

 

The CBOT raised margin requirements for wheat and mini-sized wheat contracts effective at the close of business Friday. For wheat contracts, the initial requirement increased to US$1,688 from US$1,553, while the maintenance and hedge requirements each increased to US$1,250 from US$1,150.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing July wheat above solid resistance at US$6.25, the technical analyst said. Above that, US$6.50 is the next upside price objective.

 

The bears' next downside objective is closing prices below solid support at US$5.50 a bushel. First resistance is seen at Thursday's contract high of US$6.15 and then at US$6.20. First support is seen at Thursday's low of US$5.90 and then at US$5.80.

 

Unneeded, heavy rains in the U.S. Southern Plains remain supportive to wheat futures as the wetness is damaging HRW wheat and delaying harvest in Oklahoma, an analyst said. DTN Meteorlogix predicted widespread rain and thunderstorms in the area and said local flooding appeared likely.

 

"This market should continue to see broad support until traders get a handle on actual production numbers for the Plains, but a sharp correction remains possible," according to a market comment from Arlan Suderman, analyst with Farm Futures. "The first objective will be for the winter wheat markets to close the week today firmly above US$6."

 

The U.S. Northern Plains also have additional chances for rain and thunderstorms during the coming week, which is unneeded in some spring wheat areas that are already saturated. Spring wheat production in Western Canada during the 2007/08 crop year which begins Aug. 1, will be down from the year-ago level due in part to reduced acreage, according to projections made by the Canadian Wheat Board. Western Canadian spring wheat output for 2007/08 was pegged at 21.2 million metric tonnes, compared to 24.4 million tonnes produced in 2006/07 and the 10-year average of 22.45 million.

 

Eastern Ukraine and southern Russia, which are suffering from a drought, should be warmer through the weekend, Meteorlogix said. Temperatures will be cooler again early next week with some shower activity expected, according to the weather firm.

 

"The region needs heavier and more widespread rain to reverse the recent drying trend," Meteorlogix said. "Crop stress continues."

 

Long range charts continue to suggest increasing thundershower activity during the middle of next week in central China. This should help improve conditions for summer crops, Meteorlogix said.

 

Australia's western and central wheat areas, however, look to continue mainly dry during the next seven days, increasing stress to early wheat, the weather firm said. The eastern wheat areas may see increasing rain again during this period, especially through the eastern part of the east.

 

In Argentina, dryness is impacting emergence and early growth of wheat through southern locations, Meteorlogix said. Showers totaling 0.25-0.75 inch with heavier totals locally fell through northern and eastern wheat areas during the past 24 hours. The southwest missed most of this rainfall.

 

In other news, Egypt's state-owned General Authority for Supply Commodities cancelled a tender to buy at least 55,000-60,000 metric tonnes of wheat for shipment July 11-20, on a free-on-board basis. Prices were too high, traders said.

 

GASC had said it was looking to purchase 55,000-60,000 tonnes of U.S. hard red winter wheat, U.S. soft red wheat, U.S. soft white wheat, French milling wheat, Argentine wheat or Kazakhstan wheat, and 25,000-60,000 tonnes of Russian, German, U.K. or Syrian wheat.