September 6, 2007
US Wheat Outlook on Thursday: 18-20 cents lower in correction from rally
U.S. wheat futures are expected to start Thursday's day session 18 to 20 cents per bushel lower in a pullback from recent rallies and with leadership from a correction in French wheat futures, traders said.
In e-cbot overnight electronic trading, Chicago Board of Trade September wheat tumbled 27 cents to US$8.15 1/2, and CBOT December wheat dropped 15 1/4 cents to US$8.20 1/4.
U.S. wheat futures have set fresh all-time highs in several previous day sessions, and the markets are due for a setback, an analyst said. Liffe's Paris-based milling wheat futures gapped open lower Thursday in a technical correction from sharp gains.
"Technicals are extremely overbought and due for a healthy correction," Brian Hoops, analyst for Midwest Market Solutions, said in a market comment.
Forecasts for rain in Argentina were also considered to be a bearish factor for the trade, an analyst said. Temperatures in Argentina, which has suffered from dryness, should be much warmer during the next few days, but growing areas look to turn wetter and cooler later during the weekend and next week, DTN Meteorlogix said.
Nevertheless, uncertainty about production in the Southern Hemisphere, particularly in Australia, and shrinking global supplies remain bullish fundamental factors, traders said. The West Australia wheat belt could see light showers Friday, but little other rain is expected in the country's wheat belt during the next seven to eight days, Meteorlogix said.
Production from the Australian wheat crop to be harvested October through December should exceed the drought-reduced 2006 crop, but the supply won't be sufficient to ease upward pressure on world prices already at or near record highs, industry participants said. Unfavorable weather earlier this year slashed output in other key producing areas, including Europe and the Black Sea region.
Many eastern areas of Australia's grain belt running through Queensland, New South Wales and Victoria still look good, but crop conditions are starting to turn for the worse with rain needed in the next two weeks to prevent a further deterioration, a trading manager said. Many of the potentially big crops in western areas of the eastern states have already "gone," with some acres being turned over to livestock or baled for hay, he said.
A new estimate pegs total wheat output in South Australia at 2.7 million tonnes, down from 3.5 million tonnes a month ago.
Germany's winter wheat harvest, meanwhile, totaled about 20.8 million tonnes, down 5.9% on the year, the government said. The country's grain harvest started early this year but was delayed by untimely rain.
In other news, the U.S. also sold 110,000 tonnes of wheat to Japan in a tender concluded Thursday. Japan also bought 45,000 tonnes from Australia and 20,000 tonnes from Canada in the tender.
Bulls still have solid technical power in U.S. wheat markets, a technical analyst said. However, price action in recent sessions may indicate the beginning of a "blow off top" that will, at some point soon, put in a major market top, he said.
"The ride down is likely to be as swift as this recent ride up, when the market does top out," the analyst said.
The bulls' next upside price objective is to push and close CBOT December wheat above psychological resistance at US$8.50. The next downside price objective for the bears is closing prices below psychological support at US$8.00. First resistance is seen at Wednesday's contract high of US$8.35 1/2 and then at US$8.50. First support lies at Wednesday's low of US$8.24 and then at US$8.05 1/2.
At the Kansas City Board of Trade, the bulls' next upside price objective is closing prices above psychological resistance at US$8.00. The bears' next downside objective is closing prices below psychological support at US$7.50. First resistance is seen at Wednesday's contract high of US$7.91 1/4 and then at US$8.00. First support is seen at Wednesday's low of US$7.83 1/4 and then at US$7.60.
