July 12, 2006

 

US Wheat Outlook on Wednesday: Up; spring wheat lower than expected

 

 

U.S. wheat futures are expected to open from 1 cent to 5 cents a bushel higher Wednesday on a U.S. Department of Agriculture crop report that is seen keeping the bullish fire alive, at least in the hard red spring market in Minneapolis, sources said.

 

The biggest surprise in the July crop production and supply/demand report for wheat was that the government estimated the 2006-07 other spring wheat crop at 465.3 million bushels, down from 504.5 million last year and down from the average trade estimate of 496 million bushels.

 

"The spring wheat production number was way below trade estimates and well below last year," said Brian Hoops, senior market analyst and president of Midwest Market Solutions in Yankton, S.D.

 

"It puts the hard wheat stocks in jeopardy that we could run out of hard wheat, so we'll need to continue to rally to ration production," he said.

 

The spring wheat estimate was even lower than Informa Economics' bullish prediction of 475 million bushels. Drought that has spread into the northern Plains from the south is severely impacting the crop.

 

The first look the 2006-07 durum crop also provided a bullish surprise. The USDA estimated the crop at 60.4 million bushels, versus 105.1 million last year, mostly on a huge 33% drop in planted area this season.

 

The government pegged the winter wheat crop at 1.280 billion bushels, compared to 1.264 billion in the June crop report. The Kansas hard red crop was raised to 300.8 million bushels, from 291.4 million in June.

 

The USDA's all-wheat production estimate came in at 1.806 billion bushels, versus 2.105 billion last year and below the average trade estimate of 1.819 billion.

 

U.S. 2006-07 ending stocks were pegged at 438 million bushels, down from 568 million in 2005-06, the USDA said.

 

The world wheat numbers may have been a bit of a surprise, as the government adjust production to account for changing weather and other conditions, while it raised ending stocks. The USDA raised China's 2006-07 production more than expected to 105 million metric tonnes, versus 97.5 million in June. The USDA at the same time lowered Australian production to 21.5 million tonnes, from 24 million in June, as adverse weather is seen cutting into the crop.

 

Global wheat ending stocks rose to 133.2 million tonnes, from 128.24 million in June, the USDA said.

 

"The increase in world inventories may temper the (price) gains, but with most of the (production) increase in China - which consumes most of its supplies domestically - attention will probably center on weather over the next 10 days," said Shawn McCambridge, senior grains analyst at Prudential Financial.

 

U.S. northern Plains weather conditions will remain mostly dry this week, as high temperatures continue to soar into the low-100 Fahrenheit range, putting further stress on the HRS crop, the DTN Meteorlogix weather service said. The hot, dry weather is expected to keep solid support under the market.

 

Meanwhile, 81 deliveries were posted against CBOT July wheat, with Dowd Wescott stopping 80 of them.

 

At the KCBT, 40 notices were posted, with J.P. Morgan stopping 11 and Term Commodities stopping 29, the exchange reported.

 

Just three deliveries were made at the MGE.

 

In other news, French state grains board National Service interprofessional des Grandes Culture, or ONIGC, estimated the country's 2006-07 soft wheat output at 35.3 million tonnes, down 1.6 million from the June report.

 

It pegged E.U. 2006-07 soft wheat output at 118.2 million tonnes, up 2.8% versus the previous year.

 

In overnight trade basis September contracts, Chicago Board of Trade wheat was 1 1/4 cents higher at US$4.17 3/4, Kansas City Board of Trade was unchanged at US$5.25 and Minneapolis Grain Exchange was 2 1/2 cents higher at US$5.34 a bushel.