July 3, 2007

 

US Wheat Outlook on Tuesday: 1-3 cents lower as markets take a breather

 

 

U.S. wheat futures are expected to start Tuesday's day session on the defensive as the markets take another breather after strong gains, traders said.

 

Chicago Board of Trade September wheat is called to open 1 to 3 cents lower per bushel. In e-cbot overnight trading, CBOT September wheat slipped 2 1/4 cents to US$5.81.

 

There was little fresh news out overnight to push prices higher, and the bulls need something new to feed on every day, a CBOT floor broker said. CBOT corn and soybeans also slumped overnight, adding some spillover weakness to wheat, he said.

 

Front-month wheat futures rallied to 11-year highs in recent weeks, and there is still room for a consolidative setback, traders said. Trading is expected to be choppy with some market participants taking the day off ahead of Independence Day. The CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange will be closed July 4 in observance of the holiday.

 

On Monday, follow-through selling drove prices lower and confirmed a bearish "key reversal" down on the daily bar chart, an early clue that a market top is in place, a technical analyst said. However, wheat bulls still have the strong technical advantage, he said.

 

The bulls' next upside price objective is to close CBOT December wheat above resistance at Monday's high of US$6.21. The next downside price objective for the bears is closing prices below solid support at US$5.57, which is the bottom of an upside price gap created on the daily bar chart in early June.

 

First resistance is seen at US$6.00 and then at US$6.06. First support lies at Monday's low of US$5.90 and then at US$5.80.

 

At the KCBT, bulls' next upside price objective is closing prices above solid resistance at Monday's high of US$6.15. The bears' next downside objective is closing prices below solid support at US$5.75.

 

First resistance is seen at US$6.00 and then at US$6.05. First support is seen at Monday's low of US$5.88 1/4 and then at US$5.80.

 

The basic fundamental picture for wheat remains bullish, traders said. World supplies are tight, and there are production threats from unfavorable weather.

 

Ukraine's grain harvest this year isn't likely to exceed 25 million to 27 million metric tonnes, compared with 34.3 million tonnes in 2006, because of the damage done to crops by drought, the national weather center said. The drought irreparably damaged grain on about 1.1 million hectares in the country's southeastern regions.

 

In the U.S., heavy rains will continue to delay the hard red winter wheat harvest in parts of southeast Kansas, Oklahoma and north Texas, DTN Meteorlogix said. As of Sunday, 40% of the crop had been harvested, below 62% completed at the same time last year and the five-year average of 54%, according to the U.S. Department of Agriculture's weekly progress report. The cutting delays have been ongoing for weeks now and are already priced into the markets, traders said.

 

In the weekly progress report, the USDA rated 79% of the spring wheat crop in good-to-excellent condition as of Sunday, unchanged from the previous week. Sixty-one percent of the crop was headed as of Sunday, below the 68% headed last year but above the five-year average of 49%.

 

A few thunderstorms developed overnight in spring wheat areas from eastern Montana through western and central North Dakota and into far northern areas of South Dakota, Meteorlogix said. Hot, dry weather in the west and south will increase stress to wheat during the next three-to-five days, but there is no significant concern for the North Dakota/Minnesota region, the weather firm said.

 

In Argentina, dry weather is slowing planting and emergence of the wheat crop, especially through the southwest. There is no significant rainfall expected for at least the next seven days, Meteorlogix said.

 

The wheat in West Australia, meanwhile, will benefit from showers that fell during the past 48 hours, the firm said. Conditions should be drier for the balance of the week, although showers may redevelop during the weekend, Meteorlogix said.

 

An increase in wheat plantings in Australia this year is double the amount officially forecast, according to a survey of farmers. The survey found farmers planted 22% more wheat this crop year than in the previous crop year, compared with an official forecast of an 11% increase, the report said.

 

The survey results suggest total wheat plantings this crop year are around 13.6 million hectares, rather than the 12.4 million hectares in the forecast issued in mid-June by the Australian Bureau of Agricultural & Resource Economics.