August 15, 2007

 

US Wheat Outlook on Wednesday: Up 3-5 cents on momentum, EU rally, demand

 

 

Follow-through buying, strong demand and spillover support from European markets are expected to kick U.S. wheat futures 3-5 cents higher at the start of Wednesday's day session, analysts said.

 

In e-cbot overnight trading, Chicago Board of Trade September wheat ended up 5 1/4 cents to US$6.97 3/4, and CBOT December wheat closed 3 cents higher at US$7.14.

 

Wheat has solid upside momentum after CBOT December prices Tuesday soared to fresh 11-year highs and closed above the contract's previous high. A sale of 415,000 metric tonnes of U.S. soft red wheat to Egypt on Tuesday reinforced ideas that end-users are willing to pay up even with prices near record levels, a technical analyst said.

 

There is fresh demand news out Wednesday in the form of a tender from Jordan for 100,000 metric tonnes of wheat of any origin, on a cost and freight basis. The deadline for bids is Aug. 28.

 

A rally in E.U. wheat futures also should help lead U.S. wheat into positive territory, a CBOT floor analyst said. Paris-based and London-based Liffe wheat surged again early Wednesday on tight domestic and global supplies, with most-active contracts in both markets setting fresh record highs.

 

Showers through Europe's major winter and spring grain areas should cause harvest delays during the next five days, according to DTN Meteorlogix. However, the showers do not look nearly as heavy as some that past storm systems produced.

 

In Australia, dry weather is threatening winter crop production in New South Wales, one of Australia's two big grain producing states, a government specialist said. The impact of the dry weather is worst in western parts of the state, which haven't had much rain since the late April seasonal break, when wheat was planted, he said.

 

The chance of a La Nina weather event developing in Australia in the coming months remains around 50/50, although indicators have been strengthening over the past three or four weeks, the government said.

 

A La Nina - the opposite of an El Nino event - is usually associated with at least average rainfall through eastern Australia in the calendar second half. Wheat growers are keen to see these drenched to maintain yield potential.

 

In Argentina, another very cold air mass is expected in the southern wheat belt during the next few days, Meteorlogix said. This should cause another widespread freeze event, unfavorable for the crop, the weather firm said.

 

On the bearish side, Ukraine is likely to harvest 15 million tonnes of wheat this year, according to the agriculture ministry's press service. The ministry earlier said it expected this year's wheat harvest to be 11.7 million-12.6 million tonnes of wheat.

 

The U.S. Department of Agriculture last week raised its forecast for FSU-12 output from July by 1.25 million tonnes. Projected output remains down from last year due to a drought, but harvest results indicated higher-than-expected winter wheat production in Ukraine, the USDA said.

 

Despite the increase, world wheat supplies are still historically low and have the potential to shrink more, a CBOT floor trader said.

 

The bulls' next upside price objective is to close CBOT December wheat above resistance at all-time high of US$7.50, the technical analyst said. The next downside price objective for the bears is closing prices below strong support at US$6.80. First resistance is seen at Tuesday's contract high of US$7.12 and then at US$7.25. First support lies at Tuesday's low of US$7.00 1/2 and then at US$6.94.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing December wheat above major psychological resistance at US$7.00. The bears' next downside objective is closing prices below solid support at US$6.60. First resistance is seen at Tuesday's contract high of US$6.94 and then at US$7.00. First support is seen at Tuesday's low of US$6.79 and then at US$6.75.