September 5, 2006

 

US Wheat Outlook on Tuesday: Up 2-3 cents on crop woes

 

 

U.S. wheat futures Tuesday are expected to open firmer, supported by a drop in an Australia wheat crop estimate from one of the major wheat-producing states there and continued strength in French wheat futures.

 

Benchmark CBOT December wheat is called to open 2 to 3 cent a bushel firmer.

 

In e-cbot overnight trade, September wheat rose 5 1/4 cents to US$4.06 1/2 bushel and December wheat gained 6 1/2 cents to US$4.26.

 

The dry winter in Australia has caused South Australia's Department of Primary Industries & Resources Production to slash estimates for winter crops, including wheat, in the state.

 

In a monthly crop report issued Tuesday, the department said total new crop production is now estimated at 4.70 million metric tonnes, down 30% from the estimate a month ago. If achieved, it will be down 37% from last crop year's actual output, the department said. New-crop production of wheat, including durum, is now estimated at 2.50 million tonnes, down 27% from a month ago, and if achieved will be down 34% from actual output last crop year, it said.

 

The federal government's Bureau of Meteorology last week formally declared the start of an El Nino weather event, which usually means drier, warmer weather in Australia.

 

On that note, the Philippine weather bureau is pointing to a warming trend in the equatorial Pacific, which could lead to the development of an El Nino phenomenon later this year or early next year, similar to what other meteorologist have said globally.

 

French milling wheat futures traded on Euronext.liffe continue to set contract highs on supply concerns.

 

"Globally news is bullish and now funds are getting involved," said a broker, who added European futures attempted to set back Monday, but found very little volume. Farmer selling in Europe remains very limited after this season's smaller than expected E.U. and world crops.

 

In export news, Egypt's state-owned General Authority For Supply Commodities said Sunday it bought 170,000 metric tonnes of U.S. and Canadian wheat for shipment Oct. 1-10. Egypt bought a total of 105,000 tonnes of U.S. soft red wheat from and 55,000 tonnes of Canadian soft red wheat. Egypt last bought wheat Aug. 18. Wheat bulls were hoping the competitive price of SRW wheat would eventually lure some buyers.

 

India received eight bids from domestic and foreign companies on its tender to import 1.67 million metric tonnes of wheat, an official said Tuesday.

 

Several analysts said the key to sustaining wheat prices is export demand. With concerns for supply known and priced in the market, demand needs to feed this uptrend.

 

DTN Meteorologix weather firm said recent rainfall in the Southern Plains helped to recharge soil moisture for germination and early development of winter wheat but more rain is still needed. There is some scattered rain expected by the end of the week. The firm noted Australia's wheat-growing regions could have a couple of chances for shower activity in the eastern belt during the coming week.

 

In Argentina, rains of 0.25-1.00 inch and locally heavier occurred through major wheat areas of La Pampa, Buenos Aires and southern Sante Fe during Thursday and Friday of last week. The Cordoba area has only a few light showers during this time. Temperatures were cold during the weekend.

 

A technical analyst said wheat bulls still have solid upside technical momentum. Their next upside price objective for CBOT December wheat is a close above the August high of US$4.25. The next downside price objective for the bears is a close below US$4.10 a bushel. First resistance is seen at US$4.22 and then at US$4.25. First support lies at US$4.16 1/2 and then at US$4.14.

 

The U.K.'s Home Grown Cereal Authority's first set of results from this season's quality survey of British wheat shows key measurements such as Hagberg falling numbers and protein content to be higher on the year, but the samples were taken before the weather turned wet in August. The HGCA said as such quality levels might change.

 

Hagberg falling numbers are a measurement for commercial breadmaking.

 

Wheat deliveries against the September CBOT contract totaled 1,301. Major issuers included Term Commodities issuing 1,026 contracts. The biggest stoppers were ABN Amro stopping 532 contracts, Banc of America Securities Inc stopping 267 contracts.

 

At the KCBT September deliveries totaled 432 contracts. Issuers of note included Fimat issuing 150 contracts, ADM Investor Services issuing 139 contracts and Man Financial issuing 120 contracts. The biggest stoppers were ADM stopping 181 contracts and Man Financial stopping 101 contracts.

 

At the MGE September deliveries totaled 159 contracts. Issuers of note included Prudential issuing 110 contracts. The biggest stopper was Fimat stopping 100 contracts.

 

The Commodity Futures Trading Commission said in Friday's commitment of traders report noted funds remained net short 12,648 contracts in futures and options combined CBOT wheat. They cut shorts by 3,585 contracts and also trimmed longs. Commercials are net long 46,779 contracts, a drop of 5,589 contracts. They also cut short positions.

 

At the Kansas City Board of Trade funds were net long 40,933 contracts, a rise of 1,163. Funds cut shorts by 1,924 contracts. Meanwhile, commercials are short 39,260 contracts. Commercials cut longs by 285 contracts, but also trimmed longs.

 

In the Minneapolis Grain Exchange, funds are net 6,432 contracts, a rise of 858 contracts. Commercials are net short 5,477 contracts, a drop of 391. Commercials trimmed both short and long positions.