September 4, 2007

 

US Wheat Outlook on Tuesday: 25-30 cents higher on India buys, Australia

 

 

U.S. wheat futures are poised to open Tuesday's day session sharply higher, with bulls re-energized by massive Indian purchases, fears about production problems in Australia, and record highs in foreign markets, traders said.

 

Wheat futures are called to open 25 to 30 cents per bushel higher. In e-cbot overnight trading, Chicago Board of Trade September wheat ended up 29 3/4 cents at US$7.96 3/4, and CBOT December wheat finished limit up, or 30 cents higher, at US$8.05 1/2.

 

India on Monday bought about a total of 795,000 metric tonnes of wheat from three companies, easily exceeding trade expectations. The purchases are bullish because they take a "tremendous" amount of wheat off the world market when stocks are already at historically tight levels, an analyst said.

 

The International Grains Council recently pegged 2007-08 world wheat ending stocks at the tightest level since 1979-1980. And there are ideas India may be back in the market to buy more wheat and build up its supplies even more, the analyst said.

 

India has enough stocks of wheat to meet local demand for the next 12 months but is in the process of building a buffer stock in case of problemssuch as a possible smaller next crop. Government officials have said they plan to import five million tonnes this year and with the latest purchase, imports have so far have reached only 1.306 million tonnes.

 

Japan, meanwhile, said it was seeking 175,000 metric tonnes of wheat in a tender to be concluded Thursday.

 

"The world is tight," a CBOT floor broker said.

 

There are worries supplies may get even tighter amid talk that Australia's crop may not be much bigger than it was last year, when a severe drought slashed production in half.

 

The most conservative production estimate Tuesday was from Australian wheat grower Bruce Estens, who pegged the country's 2007 crop at 10 million tonnes, about the same as last year, if dry areas don't see heavy rains this month. Estens operates a contract harvesting business and farms at Walgett in northern New South Wales.

 

Ron Greentree, Australia's biggest wheat grower who also farms in northern New South Wales, was reported as saying he expects new crop wheat production to be at least 7 million tonnes below an official forecast of 22.5 million tonnes, reflecting the impact of dry weather in key growing areas.

 

Some Australian wheat areas in Queensland may see light to moderate showers during the next five days, and West Australia's wheat belt could see light showers during Thursday or Friday, DTN Meteorlogix said. Otherwise little rainfall is expected in the wheat belt during the next seven to eight days, the weather firm said.

 

Long-range forecasts indicate some chance for significant rainfall in the Argentina wheat belt, which also has been dry. However, the firm cautioned the outlook was subject to significant day to day changes.

 

Following India's purchase and jitters over production in the Southern Hemisphere, Liffe's Paris-based November milling wheat contract soared to a fresh record high. Australia's ASX January 2008 milling wheat futures, the most active local contract, also climbed and traded above AUS$400 for the first time.

 

There should be spillover support from the gains in U.S. markets, traders said. The U.S. markets have been feeding off rallies in Paris wheat, in particular, for the last several week, they said.

 

In other news, traders said there is further support for prices from ideas Russia will consider limitations of grain exports, even though the government has said such a move is only possible after the 2007 harvest is completed in about a month. A ban or suspension on Russian grain exports would drive more business to the U.S., they said.