August 5, 2008

 

US Wheat Outlook on Tuesday: Down 10-12 cents on follow-through, spillover

 

 

Spillover pressure from other markets and fund liquidation are expected to weigh on U.S. wheat futures at the start of Tuesday's day session, with traders waiting to see the results of an Egyptian tender.

 

Chicago Board of Trade September wheat is called to open 10 to 12 cents per bushel lower. In overnight electronic trading, CBOT September wheat dropped 11 3/4 cents to US$7.47, while CBOT December wheat fell 11 3/4 cents to US$7.72.

 

CBOT grains and soybeans overnight extended sharp losses from Monday amid continued fund liquidation, traders said. There should be follow-though selling after the opening bell rings, although wheat could firm up in a technical rebound from the sell-off, a trader said.

 

Wheat also could find support from solid export demand, a trader said. Egypt's state-owned General Authority for Supply Commodities is tendering for 55,000 to 60,000 metric tonnes of wheat for shipment Sept. 1-20 on a free on board basis.

 

The grains will continue to keep an eye on crude oil, which was weaker. Soft outside markets, including "sharply lower crude oil prices and a stronger U.S. dollar, sunk wheat Monday," a technical analyst said.

 

Bears have the near-term technical advantage and gained more power Monday, the analyst said. A six-week-old downtrend is in place for CBOT December wheat on the daily bar chart, he added.

 

The next downside price objective for bears is pushing and closing CBOT December wheat below solid technical support at the May low of US$7.68, the analyst said. The bulls' next upside price objective is to push and close December futures prices above psychological resistance at US$8.00, he said.

 

First resistance is seen at US$8.00 and then at US$8.10. First support lies at Monday's low of US$7.77 and then at US$7.68.

 

In other news, the U.S. Department of Agriculture rated 56% of U.S. spring wheat in good-to-excellent condition, down four percentage points from the previous week. The USDA said 6% of the crop was harvested, up from 1% last week but below the five-year average of 19%.

 

"The trade was anticipating a 2% reduction in the good-to-excellent ratings and got double that," research marketing firm Allendale said in a note to clients. "Allendale views this spring wheat crop condition report as bullish for September MGEX futures."

 

Above normal temperatures and below normal rainfall are expected to "maintain stress on filling spring wheat" in eastern Montana and western North Dakota, DTN Meteorlogix said in a forecast. Crop conditions are "generally favorable" elsewhere in the U.S. northern Plains, the private weather firm said.

 

Spring wheat on the Canadian prairies should benefit from somewhat warmer temperatures during the next three to five days, especially in the west, Meteorlogix said. In Australia, meanwhile, "conditions mostly favor wheat at this time but more rain will still be needed as temperatures trend warmer during spring," the firm said.

 

Rabobank Australia Ltd., in a new report, left its wheat production forecast for Australia unchanged at 20 million to 24 million metric tonnes but warned of significant risks. July rainfall has stabilized the crop outlook on Australia's east and west coasts, but spring weather and rainfall remain key indicators for final production this season, a bank analyst said.