July 24, 2007

US Wheat Outlook on Tuesday: Sharply higher on European crop concerns

U.S. wheat futures are seen opening sharply higher Tuesday on strong follow-through buying from gains posted Monday. European wheat crop problems have recently cropped up, adding to a string of wheat production problems around the globe.

In overnight e-CBOT trading, December Chicago wheat futures last traded up 16 1/2 cents a bushel at US$6.54.

France, Germany and the U.K. make up over 60% of the European Union's total wheat production. All three countries are experiencing major harvest delays and threats to production due to the ongoing wet weather. "Analysts are constantly revising their crop estimate downward," said the U.K. merchant, Grainfarmers. The merchant added that public intervention stocks are already at very low levels. "In the U.K., it would only take a 10% output loss to completely wipe out our export surplus, said Grainfarmers.

There are fresh reports this morning Algeria is seeking at least 100,000 metric tonnes of soft wheat, with some speculating the purchase could be as large as 500,000 metric tonnes.

The Wheat Quality Council's spring wheat tour kicks off Tuesday in Fargo, N.D., and wraps up on Thursday, when final yield estimates for the hard red spring and durum crops will be released in the afternoon.

Monday afternoon's weekly crop progress reports showed the U.S. spring wheat crop conditions declining slightly, but still at relatively high rating levels. The hard red winter harvest in the U.S. has finally caught up with the five-year average, after lagging early on due to wet weather. Eighty-one percent of the U.S. HRW crop was reported harvested in the latest week, up from 70% last week.

Wheat futures traders will continue to keep one eye on the corn and soybean futures markets. Any bigger price moves in those markets are likely to be a significant influence in the wheat pit, said an analyst.

Technically, December Chicago SRW wheat bulls still have the solid upside technical advantage, said a market technician. The bulls' next upside price objective is to close prices above resistance at the contract high of US$6.58 a bushel. The next downside price objective for the bears is closing prices below strong support at US$6.10 a bushel.

December K.C. HRW wheat bulls' next upside price objective is closing prices above solid resistance at last week's high of US$6.34 a bushel. The bears' next downside objective is closing prices below solid support at US$6.10 a bushel.