July 12, 2007

 

US Wheat Outlook on Thursday: 5-7c up on tight US carryout, exports

 

 

A cut in new-crop U.S. carryout and bullishness about export demand are expected to shove U.S. wheat futures higher at the start of Thursday's day session, analysts said.

 

Wheat futures are called to open 5-7 cents higher per bushel. In e-cbot overnight trading, Chicago Board of Trade September wheat rose 5 3/4 cents to US$6.27 3/4, and CBOT December wheat settled 5 1/4 cents higher at US$6.39 1/4.

 

The U.S. Department of Agriculture, in its July supply and demand report, reduced its estimate for 2007-08 U.S. wheat carryout to 416 million bushels. The agency in June pegged 2007-08 carryout at 443 million and 2006-07 carryout at 456 million.

 

The average analyst estimate for 2007-08 carryout in a Dow Jones Newswires survey was 464 million. The range of pre-report guesses was 400 million to 580 million.

 

However, the agency increased its estimate for 2007-08 world wheat carryover to 116.6 million metric tonnes, which was "a little bit of a surprise," said Don Roose, president of U.S. Commodities. The USDA in June put world carryover at 112 million tonnes.

 

The UDSA also lowered its forecast for the U.S. all winter wheat production to 1.562 billion bushels, a 3% drop from its June estimate, due to heavy rains in the Plains. The average yield prediction for winter wheat was lowered by USDA to 41.6 bushels per acre, down from 43.2 a month ago.

 

Thunderstorms from southern Kansas southward will further delay the hard red winter wheat harvest in the Southern Plains, although growing areas farther north in the region will see fewer cutting problems, according to a forecast from DTN Meteorlogix.

 

Hard red winter wheat production is now forecast at 964 million bushels, a 7% drop from a month ago. The forecast for soft red winter wheat production was raised 7% to 364 million bushels.

 

"Nobody knows how many (weather-damaged) acres will not be harvested, but I would assume there are probably more cuts coming in the (HRW production estimate) by the time we get to final numbers," said Rich Balvanz, of Ag Management Services. "We've still got a lot up in the air in Kansas and Oklahoma. It looks like there is still more potential (for higher prices) in the wheat market."

 

A 50 million bushel increase in exports reflected in the supply/demand report shows supportive foreign demand for U.S. wheat, said Mike Zuzolo, analyst with Risk Management Commodities. Reduced supplies in major exporting countries provide more opportunities for U.S. wheat sales, the USDA said.

 

In a separate report issued Thursday, the USDA said export sales for the week ended July 5 were 1.18 million metric tonnes, well above trade estimates of 650,000 tonnes to 850,000 tonnes. That is supportive to prices, traders said.

 

Major buyers were Egypt, which took 290,100 tonnes, Guatemala, which bought 105,900 tonnes, Yemen, which bought 103,000 tonnes, and Iraq, which took 100,000 tonnes. Unknown destinations bought 147,500 tonnes.

 

Bulls' next upside price objective is to close CBOT December wheat above resistance at the contract high of US$6.58, a technical analyst said. The next downside price objective for the bears is closing prices below psychological support at US$6.00, which would also almost fill on the downside an upside price gap on the daily bar chart.

 

First resistance is seen at Wednesday's high of US$6.36 and then US$6.45. First support lies at US$6.25 and then at Wednesday's low of US$6.18.

 

CBOT wheat is "extremely vulnerable to upside price spikes" due to a tight supply situation, according to Goldman Sachs. The vulnerability persists even though assorted weather problems in the world's growing areas are largely priced into the markets, the firm said. Goldman's 12-month forecast for CBOT wheat is US$5.70.

 

At the Kansas City Board of Trade, bulls' next upside price objective is closing December wheat above solid resistance at US$6.31, the analyst said. The bears' next downside objective is closing prices below solid support at US$6.00, which would also nearly fill on the downside an upside price gap on the daily bar chart.

 

First resistance is seen at Wednesday's high of US$6.22 and then at US$6.31. First support is seen at Wednesday's low of US$6.08 and then at US$6.00.

 

In other news, Japan said it bought 100,000 metric tonnes of wheat, including 40,000 from the U.S., in a routine tender concluded Thursday, a ministry official said. The shipment is expected to arrive between Aug. 26 and Sept. 25.

 

Ukraine, meanwhile, harvested 7.2 million metric tonnes of grain to July 11 on about 3.9 million hectares, with the average yield of 1.84 tonnes a hectare, the agriculture ministry reported. Hot weather and a lack of rain has resulted in reduced yields but has increased crop development.

 

On July 12, 2006, only 2.53 million tonnes of grain was harvested with an average yield of 2.55 tonnes/hectare, according to the ministry's reports for the corresponding period last year. The national weather center Ukrgidrometcentr said in a statement July 3 that Ukraine's grain harvest this year wasn't likely to exceed 25 million-27 million tonnes, compared with 34.3 million tonnes in 2006, because of the damage done by drought.