July 10, 2009

 

US Wheat Outlook on Friday: Seen down on overnight, larger carryout

 

 

Losses overnight and government crop data seen as slightly bearish are setting the stage for a weaker opening in U.S. wheat futures Friday.

 

Chicago Board of Trade September wheat is called to open 4 to 6 cents per bushel lower. In overnight electronic trading, CBOT September wheat fell 3 cents to US$5.19 1/4, and CBOT December wheat lost 3 1/2 cents to US$5.45.

 

The U.S. Department of Agriculture, in its July supply/demand report, raised its 2009-10 U.S. wheat carryout forecast to 706 million bushels from its June estimate of 647 million. The increase was expected and within the range of analysts' pre-report estimates, although it was slightly higher than the average estimate of 693 million.

 

"Carryout keeps growing," Country Hedging said in a market comment.

 

The USDA said it raised the carryout forecast because a higher production estimate more than offset an expected increase in use. U.S. wheat production was estimated at 2.112 billion bushels, up from the USDA's June estimate of 2.016 billion. The average of analysts' estimate for wheat production was 2.107 billion, and the range of their pre-report estimates was 2.076 billion to 2.167 billion.

 

"The wheat production was pretty close, maybe just a tad higher than the trade expected," said Jack Scoville, vice president of Price Futures Group. "So maybe that's a tad negative."

 

The USDA trimmed its estimate for 2009-10 world wheat ending stocks to 181.3 million tonnes from its June estimate of 182.7 million. World 2009-10 production was pegged at 656.48 million tonnes, up slightly from the USDA's June estimate of 656.06 million.

 

As expected, Argentina's production estimate was dialed down to reflect dryness and reduced planted area. The USDA lowered its estimate to 9.5 million tonnes from 11 million in June.

 

Dryness is of most concern for wheat areas of La Pampa and western Buenos Aires, according to private weather firm DTN Meteorlogix. The pattern still favors below-normal rainfall chances during the next 10 days, the firm said in a forecast.

 

Heavy rainfall in recent days on wheat lands in Western Australia bolstered crop prospects, a marketing advisory service manager said. The USDA kept its forecast for Australia's crop unchanged at 23 million tonnes, which was expected.

 

There will be a chance for thunderstorms in the central and southern U.S. Plains "from time to time" over Colorado, Nebraska and Kansas during the next five to seven days, according to Meteorlogix. The storms could cause local problems for the advancing wheat harvest, the firm said.

 

Thunderstorms expected to return to the northern U.S. Plains early next week will benefit developing spring wheat, Meteorlogix said. The USDA estimated other spring wheat production at 506 million bushels, in line with the average analyst estimate of 505 million.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$5.25, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.80, he said.

 

First resistance is seen at Thursday's high of US$5.57 3/4 and then at US$5.70, he said. First support lies at Thursday's low of US$5.43 1/2 and then at this week's low of US$5.38 and then at US$5.30.