July 25, 2007

 

US Wheat Review on Tuesday: Gains; world balance sheet poised to tighten

 

 

U.S. wheat futures posted strong gains Tuesday, on fresh speculative buying amid serious concerns about wheat crops in Europe. Chicago wheat futures notched fresh contract highs Tuesday, while Chicago, Kansas City and Minneapolis wheat all posted fresh contract high closes.

 

Chicago Board of Trade September wheat futures closed up 21 3/4 cents at US$6.42 a bushel. December futures closed up 21 1/2 cents at US$6.59 a bushel.

 

Kansas City Board of Trade September wheat futures closed up 20 1/4 cents at US$6.30 and December futures closed up 20 1/4 cents at US$6.45 1/2.

 

Minneapolis Grain Exchange September wheat closed up 22 cents at US$6.43 1/4 and December closed up 19 1/2 cents at US$6.53 1/4.

 

"Concerns about U.S. quality and production have been well traded, but now the attention shifts to Europe, where wet conditions are threatening production and quality," said a U.S. brokerage analyst. "Several key production areas in the E.U. are under stress from heavy rainfall and that could tighten the world balance sheet and reduce supplies of quality wheat...," said the analyst.

 

France, Germany and the U.K. make up over 60% of the E.U.'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 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.

 

On the demand side, it was reported Tuesday that Egypt made another big purchase of wheat, including a good portion from the U.S. There is also talk 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.

 

Shifting back to the weather in U.S. spring wheat country, hot and dry weather forecasts for the northern Plains states only added bullish fuel to the upside price move in wheat futures on Tuesday.

 

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.

 

 

Chicago Board of Trade

 

December futures gapped higher on the daily bar chart and notched a fresh contract high of US$6.64 a bushel as futures prices at the CBOT notched their second-highest prices on record - second only to the all-time high of US$7.50 a bushel scored in 1996.

 

Technically, December Chicago SRW wheat bulls still have the solid upside technical advantage, and gained more power Tuesday, said a market technician. He said there are no early technical clues of a market top being close at hand. Bulls' next upside price objective is to close prices above resistance at the contract high of US$6.64 a bushel. The next downside price objective for the bears is closing prices below strong support at US$6.38 1/2 a bushel, which is the bottom of Tuesday's upside price gap on the daily bar chart.

 

 

Kansas City Board of Trade

 

December futures gapped higher on the daily bar chart, closed near the session high and closed at a fresh contract high close. Prices came within a penny of scoring a fresh contract high, which is located at US$6.49 a bushel.

 

December K.C. HRW wheat bulls' next upside price objective is closing prices above solid resistance at the contract high of US$6.49 a bushel. The bears' next downside objective is closing prices below solid support at US$6.18 1/2 a bushel, which is the bottom of Tuesday's big upside price gap on the daily bar chart.

 

 

Minneapolis Grain Exchange

 

The Wheat Quality Council's spring wheat tour kicked 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. This tour will get extra close attention given the historically high wheat futures prices at present. Early findings from the tour Tuesday saw mostly "good-looking" fields in spring wheat country.

 

Technically, December HRS gapped higher on the daily bar chart Tuesday, closed near the session high and closed at a fresh contract high close. The next upside price objective for the bulls is closing prices above solid resistance at the contract high of US$6.58 1/2. The next downside price objective for the bears is closing prices below solid support at US$6.38, which is the bottom of the upside gap on the daily bar chart, created Tuesday.