August 29, 2007

 

US Wheat Outlook on Wednesday: Steady-firm following overnight gains

 

 

A mildly firmer start is expected for U.S. wheat futures Wednesday after generally firmer overnight trade and fresh concerns over Australia's crop.

 

Most-active December is called to open 1-2 cents a bushel higher. In electronic trading, December wheat was 3/4-cent higher at US$7.39.

 

Worries are rising about the prospects for the new Australian wheat crop given the lack of rain in some areas, and some private forecasts suggest the previous output forecasts of 20 million to 22 million metric tonnes could "drop into the teens," said a commodity strategist at an Australian bank.

 

"There are extra concerns seeping into Australia's crop, which could support a higher open," said John Kleist, analyst at Kleist Ag Consulting.

 

While the overnight strength and the Australian issues could support trade on the north side of the steady, Kleist and other analysts said wheat trade ultimately could be choppy as the market takes a wait-and-see stance regarding export business.

 

"The market struggled Tuesday, but there was no damage done," Kleist said. "Yesterday was the third day where we held inside of Thursday's trading range. I think we're consolidating, pausing to see if export demand will stay strong at these high prices."

 

Ever since hitting an all time high of US$7.54, December wheat has held just under that area. In the demand news out there - Egypt's purchase of 85,000 metric tonnes of Russian wheat earlier - there holds a potential rationing sign, Kleist said.

 

"It wasn't the fact that they bought Russian wheat. It was the fact they only bought 85,000 tonnes, not the usual huge amount they normally do," he said.

 

The market will get export sales data on Thursday from the U.S. Department of Agriculture, but that data won't include the recent price rally. Next week's export sales will be key, analysts said.

 

A technical analyst said wheat bulls still have solid power and their next upside price objective is to push and close prices above resistance at the all-time high of US$7.54 a bushel. The next downside price objective for the bears is closing prices below strong psychological support at US$7.00 a bushel. First resistance is seen at Tuesday's high of US$7.45 and then at US$7.54. First support lies at Tuesday's low of US$7.34 and then at US$7.24.

 

In demand news, India's State Trading Corp said it received bids ranging between US$385 and US$434/tonne, cost and freight for its most recent wheat buy tender. In its previous tender, finalized July 10, STC purchased 511,000 tonnes of wheat at prices between US$317/tonne and US$330/tonne.

 

An official with the group said trading companies are quoting a premium of at least US$15/tonne, knowing that Australian and U.S.-origin wheat isn't being offered in Indian tenders.

 

Indian traders were surprised the government issued the tender at all, as a bumper crop has been harvested, government warehouses have enough grains to meet local demand and global prices are at record highs.

 

In other news, record prices for European wheat are driving costs up for livestock producers, millers and biofuel refiners which will raise meat and flour prices while slowing E.U. ethanol output, analysts there said.