August 31, 2007

 

US Wheat Outlook on Friday: 15-20 cents higher on bullish momentum, India

 

 

U.S. wheat futures are expected to start Friday's day session sharply higher on bullish momentum from advances to fresh all-time highs overnight and amid ideas that an expanded Indian tender will further tighten world wheat supplies, analysts said.

 

Wheat futures are called to open 15 cents-20 cents per bushel firmer. In e-cbot trading, Chicago Board of Trade September wheat ended up 20 cents at US$7.90, and CBOT December wheat climbed 20 3/4 cents to US$8.05 1/4.

 

The overnight gains represent new all-time highs for CBOT wheat futures, including a historic move above US$8 in the December contract. The overnight session high for CBOT December wheat was US$8.07 3/4.

 

Before CBOT wheat began rallying to new highs this month, the previous record high was US$7.50, set in March 1996. Adjusted for inflation, that is equal to US$9.96 in 2007.

 

Prices have been climbing in recent weeks on strong demand for U.S. wheat and historically tight world supplies. The London-based International Grains Council last week pegged 2007-08 world wheat ending stocks at their lowest since 1979-80.

 

Panic buying looks as though it will continue in the near-term as demand for wheat is largely inelastic, a CBOT floor broker said.

 

"The trade is spooked like never before," he said.

 

Along with follow-through buying from the overnight rally, spillover strength from record highs in Paris-based wheat futures should offer early support, a CBOT floor broker said. Paris-based milling wheat surged to a fresh record high in the most active November contract.

 

The U.S. and European markets are feeding off each other, analysts said.

 

India, meanwhile, said it's seeking more wheat from suppliers who had already offered 530,000 metric tonnes in a recent tender. Although the U.S. isn't expected to sell wheat to India because of disputes over quality restrictions, the enlarged tender is bullish because it will take even more wheat off the world market, an analyst said.

 

In other news, four South Korean flour mills bought 24,400 metric tonnes of U.S. No.1 wheat from trading house Cargill in a tender, a trader in Seoul said. The shipment is expected to reach South Korea some time in October.

 

In a separate tender, three South Korean flour mills bought 23,800 metric tonnes of U.S. No. 1 wheat from Cargill. The shipment is expected to reach South Korea Oct. 5 to Nov. 5.

 

Bullish concerns about dryness in wheat-growing areas of the Southern Hemisphere also remain friendly to U.S. wheat futures. Rainfall is needed to ensure favorable development of wheat in Australia and Argentina as temperatures turn warmer during the spring.

 

There is some chance for showers in eastern and southwestern Australia next week, but early indications suggest only light amounts, the DTN Meteorlogix forecast said. Argentina's outlook calls for a chance for showers during the middle of next week, but the best chance is over eastern Buenos Aires, the weather firm said.

 

Despite bullish momentum and ongoing supply fears, wheat could see a bit of a profit-taking pullback Friday going into the three-day Labor Day weekend, an analyst said. Also, the price action in CBOT December wheat during the past two days may be the beginning of a "blow off top" in that could put in a major market top at some point soon, a technical analyst said.

 

The bulls' next upside price objective is to push and CBOT December wheat above psychological resistance at US$8.00, the technical analyst said. The next downside price objective for the bears is closing prices below support at US$7.60, which is the bottom of Thursday's big upside price gap on the daily bar chart.

 

First resistance is seen at Thursday's contract high of US$7.88 1/2 and then at US$8.00. First support lies at Thursday's low of US$7.71 and then at US$7.60.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing December wheat above solid resistance at US$7.44, the technical analyst said. The bears' next downside objective is closing prices below solid support at US$7.14, which is the bottom of Thursday's big upside price gap on the daily bar chart.

 

First resistance is seen at Thursday's contract high of US$7.39 and then at US$7.44. First support is seen at Thursday's low of US$7.24 and then at US$7.14.