August 28, 2006

 

US Wheat Outlook on Monday: Up on e-CBOT, weather concerns overseas

 

 

U.S. wheat futures are called to open firmer on Monday, with strength in Chicago Board of Trade's e-cbot platform and worries over dry weather in other key wheat-growing regions a support.

 

Benchmark CBOT September wheat is called to open 5 to 6 cents a bushel firmer.

 

In e-cbot overnight trade, September wheat was up 6 1/2 cents at US$3.85 bushel and December wheat rose 6 3/4 cents to US$4.05.

 

"It's really surprising, these gains overnight, but people are talking about the dryness in Argentina and Australia as a support, plus India is looking to buy more wheat, so that's all supportive. While other places are dry, in the U.S., actually, the weather looks pretty good," said one veteran floor analyst.

 

DTN Meteorologix said the Southern Plains saw widespread thunderstorm activity replenishing soil moisture for planting. Despite the rains recent heat means there will be limited improvement due to this rain.

 

Major wheat-growing regions in the southern hemisphere remain parched. In Australia, dryness is of increasing concern for important growing areas of New South Wales and southern Queensland and no significant rainfall expected in this region during the seven-day period. In Argentina, any shower activity during the next seven days looks to be light. Rainfall is needed to support favorable early spring development. This also appears to be a cold pattern with additional chances for frost or freezing weather during the 10 day period.

 

In other news, Argentina's 05-06 wheat sales totaled 7.595 million metric tonnes as of Aug. 25, the Agriculture Secretariat said, up from 7.575 million tonnes a week earlier. Comparatively, at this time in 2005 Argentina had sold 10.07 million tonnes of 04-05 wheat.

 

Additional support comes from export news. India's agriculture ministry issued 113 permits to trading and milling companies between June 29 and Aug. 24 to import 2.912 million metric tonnes of wheat. A senior government official said the permits issued are in addition to the 3.83 million tonnes of wheat purchased by the government at zero customs duty, for delivery by January 2007.

 

"They haven't bought any U.S. wheat, but all their buying interest just depletes world wheat stocks," the analyst said.

 

In the Commodity Futures Trading Commission's weekly commitment of traders report, funds were net short CBOT wheat by 15,823 contracts, futures and options combined, as of Aug. 22. That's a rise of 11,336 contracts. Funds also cut their long positions. Commercials upped their net longs by 5,746 contracts to 46,885.

 

In the Kansas City Board of Trade, funds trimmed their net longs by 2,071 contracts to 37,849 while commercials sliced their net short positions by 1,302 contracts to 38,191.

 

At the Minneapolis Grain Exchange funds cut their net longs by 991 contracts to 5,385, while commercials cut their short positions by 967 to 3,974.

 

A technical analyst said Friday's firmer close gave bulls some fresh upside technical momentum, but said bullish enthusiasm appears to be exhausted at the higher price levels. Friday's high of US$4.08 for the December contract is now very strong overhead technical resistance. For the bears, the next downside price objective is closing prices below the August low of US$3.76 3/4 a bushel. First resistance is seen at US$4.00 and then at US$4.05. First support is at US$3.97, and then at US$3.95.

 

The floor-based analyst said depending on how strong wheat opens could give an idea of whether the market will hold its gains.

 

"If we end up opening up 7 cents higher, I think it's going to be difficult to maintain. But it we open up 3-4 cents higher, we'll probably have a better chance. If you look at Friday, we rose pretty strongly, and even though we ended with gains, it was at the low end of the trading range," he said.