August 1, 2006

US Wheat Outlook on Tuesday: Mixed; crop conditions decline

Traders and analysts expect U.S. wheat futures to open mixed after a steady to weaker overnight trade on the heels of recent gains and following an expected decline in crop conditions, sources said Tuesday.

Mixed prices are also seen in other Chicago Board of Trade markets, with corn seen firmer and soybeans lower.

In overnight trade basis September contracts, Chicago Board of Trade wheat was down 3/4 cent at US$3.96 3/4, Kansas City Board of Trade was down 1/2 cent at US$4.92 1/4 and Minneapolis Grain Exchange was 1/4 cent lower at US$4.85 3/4 a bushel.

As expected, the crackling hot conditions on the northern Plains zapped more life out of the spring wheat crop. Spring wheat conditions fell 2 percentage points to 32% good to excellent in the week to July 30, while a full 35% of the crop is considered poor or very poor, the U.S. Department of Agriculture said Monday.

South Dakota's crop has been hit the hardest, as the USDA now rates 60% of the wheat as poor or very poor, down 5 percentage points from last week. A Dow Jones condition index pegs South Dakota's crop at 67, down from 69 the previous week. A value of 100 is considered normal.

North Dakota, the largest producer of spring wheat, has 36% of its crop in poor to very poor condition. The Dow Jones index rates it at 81, versus 84 previously.

Crop conditions are rapidly losing their importance, however, as the crop has been forced to mature earlier than normal because of the drought and harvesting has already begun in some areas, sources said.

The U.S. hard red winter crop is 91% harvested, compared to 86% the previous week, the USDA said.

Meanwhile, scattered storms moved over parts of the central and eastern Dakotas Monday, and southeastern areas of the northern Plains see a chance for scattered showers Tuesday. Mostly dry conditions are expected the rest of the week, according to private weather firm DTN Meteorlogix.

Highs across the northern Plains this week are expected to range from 80 to the mid-90s Fahrenheit.

In export news, Japan is expected to tender for 148,000 metric tonnes of food wheat on Thursday. It is expected to buy 60,000 tonnes of U.S. wheat, 25,000 tonnes of Canadian and 63,000 tonnes of Australian wheat.

Taiwan bought 96,340 metric tonnes of U.S. No. 1 wheat in a Tuesday tender. The deal involves two cargoes, with shipments scheduled for Sept. 3-17 and Sept. 21-Oct. 5.

In other news, U.S. Agriculture Secretary Mike Johanns is in Iraq for meetings with agricultural producers there, in an effort to strengthen the relationship between the U.S. and Iraqi agricultural sectors. Iraq was the largest buyer of U.S. hard red winter wheat in the 2005-06 marketing year.

Technically, CBOT September's close above most of its major moving averages Monday is positive for the market and is expected to give bulls near-term momentum.

Nearby resistance, however, is met at Monday's high of US$3.99, with additional moving-average resistance at US$3.99 1/4. The next upside targets are US$4.05-US$4.06, then US$4.14. Near-term support is uncovered at Monday's US$3.91 low, with US$3.85-US$3.84 providing the next layer and further support at US$3.80, an analyst said.