August 6, 2007

 

US Wheat Outlook on Monday: 2-4 cents lower, following e-CBOT declines

 

 

U.S. wheat futures are expected to start Monday's day session on the defensive following overnight weakness, but a rally in European wheat may lend some spillover strength, traders said.

 

U.S. wheat futures are called to open 2-4 cents per bushel lower. In e-cbot overnight trading, Chicago Board of Trade September wheat fell 3 cents to US$6.47, and CBOT December wheat ended down 3 1/4 cents at US$6.65 3/4.

 

The trade is looking ahead to the release of the U.S. Department of Agriculture's crop production report Friday, and there could be some consolidation ahead of its release, analysts said. For the wheat markets, traders will be focused on any changes to hard red winter wheat harvested acreage in Kansas and Oklahoma, they said.

 

The USDA resurveyed producers in the states about harvested acreage following flooding during June.

 

"Traders will be apprehensive about building new positions in the market ahead of Friday's report," Farm Futures analyst Arlan Suderman said in a market comment. "But USDA's data has the potential for spring boarding the next major move in prices, either up or down, depending on whether USDA catches money managers on the wrong side of the market."

 

Wheat could also feel some pressure from declines in the neighboring CBOT soybean and corn markets, traders said. CBOT soybeans were sharply lower overnight on better-than-expected rains across the Midwest crop belt.

 

Advances in EU wheat futures and strong export demand, however, are seen as friendly for U.S. wheat futures, traders said. Liffe November London-based feed wheat rose to an 11-year-high for a front-month chart as the UK's wheat harvest revealed mixed yield results, a trader said.

 

Fears of larger crop reductions in other parts of Europe added support to European prices. Morocco's state wheat buyer, meanwhile, tendered to buy 350,000 metric tonnes of EU soft milling wheat and about 630,000 tonnes of soft wheat of optional origin, traders said.

 

Elsewhere, Syria's General Establishment for Cereal Processing and Trade, or Hoboob, said it may cancel contracts to export 700,000 tonnes of Syrian wheat to Egypt. Syria does not have enough grain on hand to export following a season of poor growing conditions, an official said.

 

Spring wheat on the southwestern Canadian prairies, particularly Alberta and southwest Saskatchewan, is at risk for some further damage in the next seven days from hot, dry weather, according to DTN Meteorlogix. Mostly dry conditions are also seen during the next seven days in Argentina, where farmers need more rain for planting, emergence and development of the wheat crop.

 

West Australia, meanwhile, has more favorable soil moisture conditions for developing wheat, Meteorlogix said. Periodic rainfall during the past four to six weeks has helped improve the condition of the crop.

 

Wheat bulls still have the solid upside technical advantage amid no signs of a market top being close at hand, a technical analyst said.

 

The bulls' next upside price objective is to close CBOT December wheat above resistance at the contract high of US$6.78, he said. The next downside price objective for the bears is closing prices below strong support at US$6.38 1/2, which would fill on the downside an upside price gap created on the daily bar chart.

 

First resistance is seen at US$6.78 and then at US$6.85. First support lies at Friday's low of US$6.64 and then at US$6.58.

 

Non-commercial speculative funds increased long CBOT wheat futures and options positions by 2,015 lots as of July 31 and short positions by 1,771 lots, the Commodity Futures Trading Commission said in a supplemental report. The speculative funds were net long 1,458 contracts.

 

At the Kansas City Board of Trade, bulls' next upside price objective is closing December wheat above solid resistance at the contract high of US$6.68 1/2, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$6.26, which would fill on the downside an upside price gap on the daily chart.

 

First resistance is seen at last week's high of US$6.59 and then at US$6.68 1/2. First support is seen at US$6.49 and then at US$6.45.

 

Speculative funds increased KCBT long wheat positions by 2,239 lots, shorts by 171 lots and were net long 40,441 contracts, the CFTC said.