June 25, 2007

 

US Wheat Outlook on Monday: 2-4 cents down as harvest adds pressure

 

 

An active harvest pace is expected to keep U.S. wheat futures on the defensive at the start of Monday's day session, although news of a sale to Egypt should provide underlying support, traders said.

 

Wheat futures are called to open 2 to 4 cents lower per bushel. In e-cbot overnight trading, Chicago Board of Trade July wheat ended 7 cents down at US$5.85 1/4.

 

The U.S. winter wheat harvest advanced during the weekend and is expected to charge ahead more this week in the absence of any significant weather delays, traders said. There appears to be a near daily chance for thundershowers in hard red winter wheat areas of southern Oklahoma and north-central Texas, but any thundershower activity in Kansas should be confined to the south, according to DTN Meteorlogix.

 

The markets will get a better idea of last week's cutting progress Monday afternoon, when the U.S. Department of Agriculture is slated to release its weekly crop progress report. Still, the advancing harvest creates the potential for some hedge pressure, traders said.

 

The USDA on Friday will release its plantings report, which is eagerly anticipated by traders. Statistics Canada, meanwhile, on Tuesday is slated to report an acreage drop in wheat in its updated seeding intentions survey for the 2007 season.

 

Egypt's state-owned General Authority for Supply Commodities, or GASC, during the weekend said it bought 120,000 metric tonnes of U.S. soft red wheat in a tender. GASC canceled a recent tender because prices were too high and last bought wheat June 2 when it purchased 240,000 tonnes of U.S. soft red wheat and Russian and/or Kazakhstan wheat, in Egyptian pounds.

 

Trade chatter last week indicated market participants expected Egypt to re-enter the market on the price break, so the purchases was not a "huge surprise," a CBOT floor broker said. Still, the sale is seen as positive, he said.

 

The bulls' next upside price objective is to close CBOT December wheat above resistance at the contract high of US$6.34, a technical analyst said. The next downside price objective for the bears is closing prices below psychological support at US$6.00.

 

First resistance is seen at of US$6.20 and then at Friday's high of US$6.27 1/2. First support lies at Friday's low of US$6.09 1/2 and then at US$6.05.

 

Non-commercial speculative funds increased long CBOT wheat futures and options positions by 6,211 lots and trimmed short positions by 278 lots as of June 19, the Commodity Futures Trading Commission said in a supplemental report Friday. The funds were net long 19,612 contracts.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing KCBT December wheat above solid resistance at the contract high of US$6.31, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$5.90.

 

First resistance is seen at US$6.00 and then at this Friday's high of US$6.06 1/2. First support is seen at Friday's low of US$5.92 and then at US$5.85.

 

Speculative funds increased long KCBT wheat futures and options positions by 3,437 contracts, cut shorts by 6,068 and were net long 30,918 contracts, the CFTC said. At the Minneapolis Grain Exchange, speculative funds decreased long holdings by 786 lots, shorts by 228 lots and were net long 13,673 contracts, according to the CFTC.

 

Spring wheat, which is traded at the MGE, should see some favorable weather this week, which is bearish for prices, forecasters said. Meteorlogix forecasts warm-to-hot temperatures and less rainfall during the next seven days.

 

Looking at international growing regions, drought-stricken central and north Ukraine had beneficial rains during the weekend, Meteorlogix said. South Ukraine and North Caucasus Russia, however, still need more widespread rainfall, the weather firm said.

 

Some beneficial shower activity also occurred in the western part of West Australia's wheat belt during the weekend, according to Meteorlogix. Showers later this week look to be light, and a more widespread rain is still needed, the firm said.

 

In Argentina, dry weather is slowing planting and emergence of the wheat crop. No rainfall is expected for at least the next seven days, Meteorlogix said.

 

In other news, old wheat prices in China were slightly lower in the week to Monday, but newly harvested wheat was higher as farmers held out for better prices. The ex-factory price of average-quality wheat in Henan province was around RMB1,500 a metric tonne, the same as the previous week.