July 22, 2009

 

US Wheat Outlook on Wednesday: Seen lower on slow demand, ample supply

 

 

Bearishness about slow export demand and comfortable world supplies is expected to weigh on U.S. wheat futures Wednesday, analysts said.

 

Chicago Board of Trade September wheat is called to open down 3 to 5 cents per bushel. In overnight electronic trading, CBOT September wheat lost 5 cents to US$5.29 3/4, and CBOT December wheat fell 5 cents to US$5.56 1/2.

 

Fundamentals for wheat continue to look weak, as global supplies are ample and demand for U.S. wheat has been disappointing, an analyst said. Egypt on Tuesday bought 60,000 tonnes of Russian wheat in a tender and none from the U.S.

 

"Fundamental traders were disappointed by news Russia won the latest Egyptian snap tender, after the U.S. secured parts of the two previous deals," said Bryce Knorr, analyst for Farm Futures. "The shift raised fears Egypt may have resolved its dispute over quality with Russia, which has emerged as a major supplier to one of the world's largest importers."

 

Egypt, a major buyer on the world wheat market, quarantined some Russian wheat recently due to concerns about quality.

 

In supply news, National Australia Bank Ltd. raised its production forecast for the country's 2009 wheat crop to 23.2 million metric tonnes, up 8.4% from last year and 2.7% from its June forecast. Average to above average rainfall through much of the wheat belt lifted the prospect of improved yields, although production "remains highly contingent on good spring rainfall," an official said.

 

In Argentina, which has struggled with dryness, heavy thunderstorms were reported in northern and eastern Buenos Aires and in southern Sante Fe, according to private weather firm DTN Meteorlogix. The southwest saw showers Tuesday and some snow Wednesday, but precipitation was fairly limited, the firm said.

 

"The southwest and far west wheat areas continue to suffer from drought stress," said Joel Burgio, Meteorlogix meteorologist. "However the balance of the wheat belt has improved considerably."

 

In the U.S. northern Plains, spring wheat will mostly benefit from a hotter trend, except possibly in the west where it may be too dry, according to Meteorlogix. Showers in the east will favor crop growth.

 

In other news, traders are monitoring news about the potential for increased government oversight of U.S. wheat as regulators try to improve the convergence of cash prices and futures. The Commodity Futures Trading Commission will need take aggressive actions to fix a broken wheat futures system, despite previous attempts to reform it, CFTC Chairman Gary Gensler said Tuesday.

 

"A cautious mood should prevail across the board this morning, with news out of Washington keeping traders on the sidelines," Knorr said. "The market is waiting to see whether new position limits could be imposed in an attempt to solve problems with the Chicago wheat contract."

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$5.38, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$6.00, he said.

 

First resistance is seen at US$5.70 1/2 and then at US$5.80. First support lies at US$5.57 1/4 and then at US$5.50.