September 6, 2006

 

US Wheat Outlook on Wednesday: Steady after sluggish e-cbot trade

 

 

U.S. wheat futures on Wednesday are seen starting steady following a steady-weak overnight trade on the Chicago Board of Trade's e-cbot system and ideas the market is overbought, although the market could turn firmer as wheat's bias is to the upside.

 

Benchmark CBOT December wheat is called to open steady.

 

In e-cbot overnight trade, December wheat was 1/4 cent lower at US$4.21 3/4.

 

"Even thought we're overbought at these levels, the market still has bullish inputs," one long-time analyst said.

 

Wheat could be due a correction after last week's stout rally, but with continued news of crop stress across the globe, losses will likely be contained.

 

Australia's new-crop wheat production could plunge to as low as 13 million metric tonnes if growing conditions continue to deteriorate, but won't likely reach the 10-million-tonne level seen in 2002, commodities manager and trader Emerald Group Australia Pty. Ltd. said Wednesday. If achieved, it would be around half the actual output of 25.1 million tonnes in the last crop year ended March 31 and would sharply reduce availability of exports.

 

"That is pretty grave," said John Kleist at Top Third Ag Marketing.

 

Wheat crops in southern Brazil states will face their second day of frost and below-zero temperatures on Wednesday, according to local forecasts, leading to losses to the 2006 winter wheat crop, agronomists and brokers said late Tuesday. A strong cold front has blanketed Brazil's southern states with record-breaking cold in many towns. More of the same is expected Wednesday, according to local weather forecasts in Rio Grande do Sul. Rio Grande do Sul is the No. 2 wheat producer in Brazil.

 

The Czech Republic's total 2006 grain harvest is estimated at 6.034 million metric tonnes, down 13.1% from 2005, with a dry and hot July followed by a cold and wet August affecting crops, the Czech Statistics Office, or CSU said. This compares to an estimate of 6.274 million metric tonnes, last month. Winter wheat production is seen down 14.9%. This is more evidence, analysts said, of the problems Europe's cereal crops are facing.

 

Demand continues to support prices. South Korea seeks 22,600 metric tonnes of U.S. wheat in a tender to be concluded Thursday. The wheat shipment will reach South Korea Nov. 1 to 30.

 

Taiwan bought 49,510 metric tonnes of U.S. wheat in a tender concluded on Wednesday.

 

The wheat will be shipped from Pacific Northwest and arrive in Taiwan between Oct. 9-23.

 

Late Tuesday, India's government said the duty on private imports of wheat is being reduced to zero from the current 5%. This comes after several flip-flops and a lack of communication by government officials previously. The zero duty will be applicable until December. India hopes to buy 8.5 million tonnes wheat in the year to March 2007.

 

"There was some confusion about that duty and what it ultimately did was likely create higher prices for themselves, making it difficult to import," Kleist said.

 

Even with a weaker overnight trade, a technical analyst said bulls still have good upside technical momentum. Their next upside price objective for December wheat is a close above the July high of US$4.36 1/2. The next downside price objective for the bears is a close below US$4.00 a bushel. First resistance is seen at US$4.25 and then at US$4.29. First support lies at US$4.20 and then at US$4.15.

 

DTN Meteorologix weather firm said the Southern Plains could see a chance for scattered light to locally moderate showers, about 0.25-0.75 inch and locally heavier by the weekend, with temperatures averaging near to below normal. The six-to-10 day outlook calls for near normal temperatures and rainfall near to above normal.

 

Australia could see some light rains in west and southeast areas in the next few days, but the balance of the wheat continues under some stress due to dryness. In Argentina rainfall late last week improved the condition of wheat in the southern and eastern belt, however northwest areas missed out on this rain. The forecast shows little, if any, significant rainfall during the 5-7 day period.

 

Wheat deliveries against the September CBOT contract totaled 284. Major issuers included USA Blue issuing 112 contracts. The biggest stopper was Banc of America Securities Inc stopping 252 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 Minneapolis Grain Exchange September deliveries totaled 56 contracts. Issuers of note included Goldenberg Heymeyer issuing 19, Cliff Largon Company issuing 15 and Frontier Futures issuing 14 contracts. The only stopper was Fimat, who stopped all 56 contracts.