July 18, 2008

 

US Wheat Outlook on Friday: Seen steady-lower on follow-through

 

 

U.S. wheat futures are expected to start Friday's day session steady to 3 cents lower on follow-through selling and forecasts for a big global crop, with traders waiting to see the results of an Egyptian tender.

 

Chicago Board of Trade September wheat overnight slipped 2 3/4 cents to US$8.06 3/4 per bushel. CBOT December wheat ended down overnight 3 1/4 cents at US$8.30 1/2.

 

Fundamentals for the wheat markets continue to look bearish, as the world is expected to produce its biggest crop ever in 2008-09. World 2008 cereal output will rise 2.8% on the year to a record 2.18 billion tonnes, mostly due to a significant expansion in wheat plantings, the U.N.'s Food and Agriculture Organization said in a new report.

 

In the Black Sea region, an aggressive competitor to the U.S. for exports, Ukraine is expected to harvest 43 million metric tonnes of grain this year, up from a previous forecast of 40.4 million tonnes, the agriculture ministry said. Weather is looking mostly favorable for wheat around the world, a trader said.

 

Light to moderate rain Friday in the West Australia wheat belt will favor slow growth of wheat, improving conditions after the dry June, DTN Meteorlogix said. Australia's eastern wheat areas also may see showers during the weekend and there is a chance for a strong northern branch trough to bring big rains to key Queensland crop areas next week, the private weather firm said.

 

Traders are waiting for the results of a snap tender from Egypt's state-owned General Authority for Supply Commodities. GASC said it was tendering to buy 55,000-60,000 metric tonnes of wheat on a cost and freight basis for shipment Aug. 16-31.

 

Weakness in CBOT corn should add to the bearish tone for wheat, as wheat has been looking to corn for direction recently, a trader said. The grains are connected because both are used for animal feed.

 

Wheat closed lower Thursday amid sell-offs in other markets, such as corn and crude oil, and in a setback from a technical rally Wednesday. Thursday's pullback leaves wheat vulnerable to further losses Friday, as the markets are testing downside support, an analyst said.

 

"Bears still have the near-term technical advantage," a technical analyst said.

 

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

 

First resistance is seen at US$8.50 and then at Thursday's high of US$8.65. First support lies at US$8.20 1/4 and then at US$8.00.