July 17, 2008

 

US Wheat Outlook on Thursday: 6-8 cents lower on spillover, setback

 

 

U.S. wheat futures are expected to start Thursday's day session lower in a setback from a technical-based rally Wednesday, although weekly export sales were seen as strong.

 

Nearby Chicago Board of Trade September wheat is called to open 6 to 8 cents per bushel lower. In overnight electronic trading, CBOT September wheat shed 8 3/4 cents to US$8.25 1/4, and CBOT December wheat dropped 9 cents to US$8.48 1/4.

 

The markets overnight gave back some of Wednesday's gains amid weakness in other markets and a lack of follow-through buying. CBOT corn and soybeans were on the defensive overnight, along with crude oil.

 

It seems as though Wednesday's rally may have been short-term overdone, a CBOT floor trader said. But the markets could possibly see a two-sided trade Thursday, depending on what corn and soybeans do, he said.

 

Fundamentals for wheat continue to look bearish, as the U.S. winter wheat harvest rolls on with reports of strong yields. The world is expected to produce a record wheat crop in 2008-09.

 

Analytical report Strategie Grains raised its 2008-09 European Union soft wheat production forecast Thursday to 131.7 million tonnes, up 2.7 million tonnes from the June projection and an 18% jump from 2007-08. Favorable weather during the grain-filling period in Hungary, Romania, Bulgaria and Slovakia triggered sharp production increases in soft wheat crops there.

 

Weather conditions remain friendly for wheat around the globe, an analyst said. Conditions are "mostly favorable" for spring wheat on the U.S. northern Plains, with forecasts for thunderstorms through central and eastern areas, DTN Meteorlogix said.

 

Australia is expected to see "another round of significant rain" in the West Australia wheat belt during the next two or three days, Meteorlogix said. The weather system may bring some rain to the southeast wheat areas of Australia later this weekend, according to the private weather firm.

 

Argentina's forecast "includes the mention of showers and cooler conditions in the region during the next five days," Meteorlogix said. Rainfall is needed to support favorable development of wheat, mainly in southwest growing areas.

 

However, weekly U.S. wheat export sales of 748,600 metric tonnes were above trade estimates, which ranged from 400,000 to 650,000 tonnes. The sales were up 21% from the previous week and 29% from the prior 4-week average.

 

The weekly export business was "solid," a CBOT trader said, and could temper weakness in the market. In other export news, Iraq has issued a new tender to buy 50,000 tonnes of wheat.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at Wednesday's low of US$8.20 1/4, a technical analyst said. The bulls' next upside price objective is to push and close December futures prices above solid technical resistance at US$8.70, he said.

 

First resistance is seen at Wednesday's high of US$8.62 1/2 and then at US$8.70. First support lies at US$8.50 and then at US$8.30.