August 2, 2006

 

US Wheat Outlook on Wednesday: Up 2-4 cents on spillover strength, bounce

 

 

Traders and analysts expect U.S. wheat futures to open 2 to 4 cents a bushel higher Wednesday, as prices benefit from higher calls in corn and soybeans and as wheat bounces off recent lows, sources said.

 

In overnight trade basis September contracts, Chicago Board of Trade wheat was 3 1/2 cents higher at US$3.96, Kansas City Board of Trade was up 2 1/4 cents at US$4.84 1/4 and Minneapolis Grain Exchange was 4 cents higher at US$4.72 1/2 a bushel.

 

There are signs that a subtropical high-pressure ridge that brought the recent heat wave to the central U.S. will re-strengthen in the next seven to 10 days, producing above-normal temperatures and below-normal rainfall for the entire Midwest, a DTN forecast said. This is producing higher calls in corn and soybeans, which in turn is supporting the wheat market, a trader said.

 

Conditions on the northern Plains were cooler, but with little rainfall, the past two days. Above-normal temperatures and below-normal rainfall in the next six to 10 days, however, will favor the drought-reduced spring wheat harvest, according to private weather firm DTN Meteorlogix.

 

Wheat prices are also expected to bounce technically from Tuesday's lower to sharply lower close, the trader said.

 

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

 

Morocco bought 20,000 tonnes of U.S. soft wheat for delivery by the end of September.

 

India may import 1 million tonnes more wheat in the year to March 2007, adding to the 3.9 million tonnes already planned. The added imports are an effort to raise wheat stocks to 4 million tonnes by March, a government official told Dow Jones Newswires.

 

India's monsoon rains, meanwhile, are 3% below normal this year, but the volume of the actual rains matches the forecast of India's Meteorological Department.

 

Early harvest results show the U.K.'s wheat crop is of poor quality after being hit by heat and dryness this year. Just 10% of the crop has been cut so far, but farmers expect quality to improve once the soft wheat varieties ripen, U.K. merchant Grainfarmers said.

 

In other news, more feed companies in China are replacing corn with wheat to produce livestock feed, because corn prices are still holding at high levels, despite price declines in recent weeks.

 

Technically, CBOT September wheat was held to an inside day on the bar charts. It finds immediate support at the US$3.92-US$3.91 area, which coincides with Monday and Tuesday's lows and also 100-day moving average support. Further support is uncovered at last week's US$3.80 low.

 

September meets resistance at Tuesday's US$3.97 1/2 high, then US$3.99, US$4.05-US$4.06 and the July 21 US$4.14 high.

 

With Tuesday's loss, near-term technical support on September Kansas City Board of Trade wheat is found at the US$4.81 double-bottom low, with US$4.77 serving as the next target for bears, an analyst said.

 

At the MGE, prices fell to over one-month lows Tuesday and did some technical damage. Support on September is now found at the June 26 US$4.58 low.

 

The sharply lower close also puts MGE September firmly below the 10-day and 40-day moving averages, which is a negative technical development, though prices look to bounce a bit at the open.