August 9, 2007

 

US Wheat Outlook on Friday: Firmer; USDA cuts stocks, ups US exports

 

 

U.S. wheat futures are expected to start Friday's day session 2-3 cents higher per bushel on a new, lower government estimate for tight world ending stocks, analysts said.

 

In e-cbot overnight electronic trading, Chicago Board of Trade September wheat ended down 1 cent at US$6.72 1/2, and CBOT December wheat fell 2 1/2 cents to US$6.88 1/2.

 

The U.S. Department of Agriculture, in its August crop reports, pegged 2007-08 world ending stocks at 114.8 million metric tonnes, down from 116.6 million in July. Traders expected to see a decline amid global production problems, but the adjustment is still considered to be supportive because it indicates the U.S. may have more export business and reinforces fears about shrinking supplies.

 

The USDA raised its U.S. export forecast 25 million bushels to 1.075 billion bushels. It also lowered its estimate for 2007-08 U.S. ending stocks to 404 million bushels, down from 417 million in July but slightly above the average pre-report analyst estimate of 402 million.

 

"World wheat ending stocks were down nearly 2 million tonnes," said Brian Hoops, of Midwest Market Solutions. The report contained "no major surprises, but it confirms tight world stocks."

 

As for production, the USDA cut its output estimates for the European Union and Canada, as expected. The E.U. forecast is for a decline of 1.7 million metric tonnes, which was below estimates of some analysts.

 

Estimates for production in Argentina and Australia were kept unchanged from last month.

 

West Australia should stay dry or see just a few light showers during the next five to seven days, DTN Meteorlogix said. More rain will be needed as temperatures warm during the early spring period. Northeast growing regions, including northern New South Wales and Southern Queensland are most in need of moisture.

 

In Argentina, some light rain is expected in the major growing areas next Tuesday, Meteorlogix said. Otherwise, dry conditions are forecast for the next seven days. More rain is needed to support the crop in most major growing areas but especially in the southwest, according to the firm.

 

U.S. 2007-08 all-wheat production was put at 2.114 billion bushels, down from the USDA's July estimate of 2.138 billion and below the average pre-report analyst estimate of 2.129 billion. A poorer-than-expected winter wheat crop was blamed for the decline, the USDA said.

 

The new USDA forecast for winter wheat production this year is 1.537 billion bushels, below the average pre-report analyst estimate of 1.554 billion. That's a 2% decrease from the July forecast, but still an 18% increase from last year when production was 1.298 billion bushels.

 

The USDA estimated other spring wheat production at 500.1 million bushels, up slightly from its July estimate of 498 million but below the average pre-report analyst estimate of 508 million. In 2006, other spring wheat production was 460 million.

 

Durum production was pegged at 76.7 million bushels, down from the USDA estimate of 79 million and the average pre-report analyst estimate of 76.7 million. In 2006, durum production totaled 53 million.

 

Spring wheat on the U.S. Northern Plains should see generally favorable conditions for the maturing crop and the harvest, Meteorlogix said. Cooler temperatures and some showers improve conditions for filling wheat in the Prairies after recent hot, dry weather, the weather firm said.

 

Despite the decline in total production, the markets are more focused on demand, said Tim Hannagan, analyst with Alaron Trading.

 

The bulls' next upside price objective is to close CBOT December wheat above resistance at Thursday's contract high of US$7.10 1/2, a technical analyst said. The next downside price objective for the bears is closing prices below strong support at US$6.58.

 

First resistance is seen at US$7.00 and then at Thursday's contract high of US$7.10 1/2. First support lies at Thursday's low of US$6.88 and then at US$6.78.

 

At the Kansas City Board of Trade, bulls' next upside price objective is closing December wheat above solid resistance at Thursday's contract high of US$6.86, the technical analyst said. The bears' next downside objective is closing prices below solid support at this week's low of US$6.56.

 

First resistance is seen at US$6.81 and then at US$6.86. First support is seen at Thursday's low of US$6.72 and then at US$6.65.