September 1, 2006

 

US Wheat Outlook on Friday: Slightly down on profit taking

 

 

After a week of hefty gains, U.S. wheat futures on Friday are expected to open weaker, as traders book profits ahead of a long weekend.

 

Slight losses in overnight trade might lend light pressure, too.

 

Benchmark CBOT December wheat is called to open steady to 1 cent a bushel weaker.

 

In e-cbot overnight trade, September wheat was down 2 1/2 cents to US$4.01 1/2 bushel and December wheat slipped 2 cents to US$4.20 1/4.

 

Since Monday, CBOT December wheat has tacked on 18 cents in gains on a combination of fund buying, bullish technical chart formations and the continued worries about global supplies. Analysts said with a 4.5% gain in value this week, it would not be surprising to see the market pull back.

 

Similar gains were seen at the Kansas City Board of Trade and the Minneapolis Grain Exchange. KCBT December rallied 17.25 cents and MGE December rose 12.75 cents.

 

Volume might be subdued ahead of a three-day holiday. All three major wheat futures exchanges - CBOT, KCBT, MGE - are shuttered for Labor Day. On Monday electronic trading will reopen at normal evening times and pit trade resumes on Tuesday.

 

DTN Meteorologix said in the Southern Plains, scattered rains during Friday and Saturday may linger in the south Sunday. In Australia, fast-moving disturbances are forecast to bring mostly light showers to West Australia and to Victoria over the next five to seven days, but little is expected elsewhere in the region. Temperatures in the southeast early next week could hold potential for cold weather, keeping development of wheat slow.

 

In Argentina, light to moderate rain is expected Friday, with eastern locations forecast to see the heaviest precipitation, but western locations will see some rain as well. The next chance for rain does not come until late next week or next weekend.

 

Analysts In Kansas City said: "While we still feel the board can go higher, additional Southern Hemisphere weather premium will have to wait until next week," due to the three-day weekend.

 

Support is seen from the rise in cash wheat prices this week at Argentina's Rosario Cereals Exchange, up on high demand from exporters and concerns that drought would affect the new crop, traders said.

 

Drought in the main wheat-growing areas is threatening the young crop, with analysts saying that if there is no rain over the next two weeks, the crop will be seriously affected.

 

A technical analyst said wheat bulls have solid upside technical momentum. To keep that going, their next upside price objective is a close above the August high of US$4.25, basis CBOT December. The next downside price objective for the bears is a close beneath US$4.00. First resistance is seen at US$4.25 and then at US$4.32. First support lies at US$4.14 1/2 and then at US$4.10.

 

For KCBT December, a technical analyst said bulls will be in solid control if the market can hold above the 100-day average at US$4.91 through the close.

 

Wheat deliveries against the September CBOT contract totaled 360 contracts. Main issuers included Calyon issuing 100 and Deustche Ban issuing 65. The biggest stopper was the customer account of Tenco, which stopped 239 contracts.

 

At the KCBT September deliveries totaled 608 contracts. Issuers of note included ADM Investor Services issuing 240 contracts and Frontier Futures issuing 203. The biggest stopper was Man Financial at 294.

 

There is plenty of news out of India. That country's agriculture ministry has issued a permit to a company for importing 7,750 metric tonnes of U.S. wheat at a 5% customs duty, a senior government official said Friday.

 

"Until late last week, we issued at least one permit for bringing in U.S. wheat. The quantity is not very significant, but it indicates there is some interest to source wheat of American origin," the official told Dow Jones Newswires.

 

The business itself won't have much market impact, but there are hopes it could lead to other sales and underscores India's interest in sourcing wheat, a bullish analyst said.

 

India is likely to receive 1.43 million metric tonnes of wheat at its ports by the end of September, Consumer Affairs Secretary L. Mansingh told reporters Friday. Since April, 725,000 tonnes of wheat out of a total of 3.83 million tonnes contracted by India have arrived, and another 525,000 tonnes are expected by Sept. 15, Mansingh said.

 

India's federal government cut wheat supplies under its subsidized programs, and its total sales between April and June are estimated at only 3.04 million metric tonnes, down 35% from the corresponding period of last year, government data showed Friday.

 

According to the data, subsidized sales of rice remained firm but were marginally lower on year. "To minimize (wheat) imports, we are trying to substitute wheat with rice for subsidized sales programs, but response from provinces has been lukewarm," said a government official.