September 10, 2007

 

US Wheat Outlook on Monday: 20-24 cents higher on dry Australia, EU rally

 

 

A lack of rain in Australia and spillover strength from a rally in E.U. wheat futures are expected to shove U.S. wheat futures sharply higher at the start of Monday's day session, traders said.

 

Wheat futures are called to open 20-24 cents per bushel higher. In e-cbot overnight trading, Chicago Board of Trade December wheat climbed 21 1/2 cents to US$8.65.

 

Traders had expected rain to give dry wheat-growing areas of Australia a boost during the weekend, but precipitation was not widespread enough to provide much relief for the crops, analysts said.

 

Figures show the Esperance region on Australia's south coast received a restorative 15-25 millimeters, while adjacent areas and small parts of eastern New South Wales received 1-5 millimeters, barely enough to wash dust off leaves. In central Victoria, 0-9 millimeters fell.

 

"Rainfall is needed in all areas but it is especially needed in northern areas of the west and southern areas of the east," DTN Meteorlogix said. "Showers last Friday in West Australia occurred with low coverage."

 

Production from Australia's wheat crop - to be harvested in October through December - could reach 15 million to 19 million metric tonnes, according to an estimate issued Monday by Rabobank Australia Ltd. But the crop could undershoot this range if the weather remains dry in coming weeks, it said in a monthly review of Australian agriculture.

 

The U.S. Department of Agriculture in August pegged Australia's production at 23 million tonnes. There are expectations the agency will lower the forecast in its September crop report due out Wednesday.

 

Any shower activity during the next seven to eight days is expected to be light and mainly confined to southern West Australia, Victoria and far south New South Wales, Meteorlogix said.

 

"The Australia situation is huge," a CBOT floor broker said. "Every week, you can nip another million tonnes off production."

 

Global wheat stocks in 2007-08 are seen at their lowest level since 1979-1980, according to the International Grains Council. Production problems in Europe and the Black Sea region have left the U.S. as the main exporter on the world market, and the trade was hoping that strong output in the Southern Hemisphere would help ease anxiety over tight supplies.

 

Argentina's main growing region is expected to see increasing rainfall during the next five to seven days, which should help replenish developing wheat, according to Meteorlogix. However, much of the crop has already been spoken for, the CBOT floor broker said.

 

Liffe's Paris milling wheat futures, meanwhile, spiked higher in a rush to buy following a recent profit-taking dip, traders said. The rally was spurred by gains at the CBOT after Paris and London closed Friday, a London-based broker said.

 

Bulls still have solid technical power at the CBOT, and their next upside price objective is to push and close December wheat above resistance at US$9.00, a technical analyst said. The next downside price objective for the bears is closing prices below psychological support at US$8.00. First resistance is seen at Friday's contract high of US$8.48 and then at US$8.50. First support lies at US$8.35 1/2 and then at US$8.25.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing December wheat above resistance at US$8.25, the analyst said. The bears' next downside objective is closing prices below support at US$7.77. First resistance is seen at Friday's contract high of US$8.10 and then at US$8.25. First support is seen at US$8.00 and then at US$7.91 1/4.

 

Wheat prices in China's major producing regions were mostly stable in the week to Monday, supported by steady demand ahead of holidays later this month. Purchase prices of average quality white wheat in Xinyi market in Jiangsu province were at RMB1,470-RMB1,520 a metric tonne, flat from a week earlier.

 

In other news, Jordan's Ministry of Trade and Industry said Monday it agreed to buy 50,000 metric tonnes of Syrian wheat, on a free on trucks basis. Yemen has also agreed to buy 50,000 tonnes of Syrian wheat at a price of US$332/tonne.