September 12, 2007

 

US Wheat Outlook on Wednesday: Up 15-20 cents following USDA report

 

 

U.S. wheat futures are expected to start Wednesday's day session sharply higher on strong upward momentum and bullish adjustments in a new government crop report, traders said.

 

However, the markets may struggle to hold strong gains as the report did not offer many big surprises, analysts said. Fears about tight ending stocks and global crop losses have already been factored in, they added.

 

Wheat futures are called to open 15-20 cents per bushel higher. In e-cbot overnight trading, Chicago Board of Trade December wheat rose 16 1/4 cents to US$9.06 3/4.

 

The markets also had a sharp run-up Tuesday, with CBOT December wheat closing near limit up at 29 1/2 cents higher.

 

The U.S. Department of Agriculture, in its September supply and demand report, pegged U.S. 2007-08 wheat ending stocks at 362 million bushels, below the average trade guess of 376 million and down from the August estimate of 404 million. "If realized," the USDA said in the Wednesday report, "this year's carryout would be the lowest since 1973-74."

 

However, the trade may have been expecting to see a bigger drop to about 300 million, an analyst said.

 

A cut in world ending stocks and reductions in global output also was not shocking, traders said. World wheat ending stocks for 2007-08 were put at 112.4 million metric tonnes, down from 114.8 million in August.

 

"In wheat a lot of the bullish news is already factored in," said Don Roose, president of U.S. Commodities.

 

Australia's production was pegged at 21 million tonns, down from 23 million in August, due to dryness. The markets remain focused on weather forecasts for Argentina amid ideas that crop losses have already exceeded the USDA's estimate, a CBOT floor broker said.

 

Any shower activity during the next seven days will be mainly confined to southern areas of West Australia and Victoria, DTN Meteorlogix said. A few showers may reach to southern South Australia and southern New South Wales at times or a little further north, the weather firm said.

 

The USDA pegged the EU-27 crop at 121.83 million tonns, down from 124.93 million in August. Canada's production forecast fell to 20.3 million tonns from 21.5 million.

 

Exports in the 2007-08 marketing year, meanwhile, are now forecast higher at 1.1 billion bushels, up from the August forecast of 1.075 billion bushels.

 

"Exports are projected 25 million bushels higher as a tighter world supply situation boosts prospects for U.S. wheat sales," the USDA said

 

The USDA said Wednesday in an announcement separate from the crop report that there were export sales of 168,000 metric tonns of U.S. wheat for delivery to unknown destinations in the 2007-08 marketing year. The agency said that of that total, 70,000 tonns are hard red spring wheat, 52,500 tonns are hard red winter wheat and 45,500 tonns are white wheat.

 

The HRW wheat sales should be supportive for Kansas City Board of Trade wheat futures, while the HRS wheat sales should give Minneapolis Grain Exchange futures a boost, floor traders said.

 

In other export news, India said it has no immediate plans to import more wheat. India has already issued three tenders to import wheat so far in 2007. The government's statement is significant because officials have set an ambitious target to import 5 million metric tonns of wheat in 2007, and only 1.306 million tonns has been contracted so far.

 

The bulls' next upside price objective is to push and close CBOT December wheat above psychological resistance at US$9.00, a technical analyst said. The next downside price objective for the bears is closing prices below support at US$8.50. First resistance is seen at Tuesday's contract high of US$8.91 and then at US$9.00. First support lies at US$8.72 and then at Tuesday's low of US$8.58.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing December wheat above resistance at US$9.00, the analyst said. The bears' next downside objective is closing prices below solid support at US$8.10, which would fill on the downside this week's upside price gap on the daily bar chart. First resistance is seen at Tuesday's contract high of US$8.59 and then at US$8.75. First support is seen at US$8.37 1/2 and then at Tuesday's low of US$8.29.