September 17, 2007

 

US Wheat Outlook on Monday: 20-25 cents higher on dry Australia forecasts

 

 

U.S. wheat futures are expected to start Monday's day session sharply higher as forecasts for more dry weather in Australia are raising fears about supply shortages, traders said.

 

Benchmark Chicago Board of Trade December wheat is called to open 20 to 25 cents per bushel higher. In e-cbot overnight trading, CBOT December wheat rose 24 cents to US$8.70.

 

The trade was watching for rain to ease dry conditions in Australia during the weekend, but wheat fields did not find much relief, wheat industry members said. The weather remained mostly dry, except for pockets of light rain reported in western portions of West Australia and over Victoria, DTN Meteorlogix said.

 

Looking forward, the Meteorlogix forecast calls for more dry weather. Minimal amounts of rain could fall over southern portions of West Australia during the next 24-48 hours, and scattered light showers of 1/4 inch or less may move over Victoria and southern New South Wales on Wednesday, the weather firm said.

 

"There is no change to the overall dry weather pattern in the major wheat areas expected during the next 10 days," Meteorlogix said. "Crop losses will increase as the crop enters the critical heading stage of development during the next few weeks."

 

The trade this year is focused on Australia's production potential because unfavorable weather has slashed output in other key producing regions, such as Europe and the Black Sea area. The U.S. Department of Agriculture last week pegged world wheat ending stocks at 112.4 million tonnes, a three-decade low.

 

The northern and eastern parts of the Western Australian wheat belt, the west of South Australia, parts of central Victoria, southern and central New South Wales and southern Queensland are all indicating forecasts of "well below average yields," according to a monthly climate and agricultural update issued Monday by Australia's Bureau of Rural Sciences. Large swathes of the areas won't make 10% of historical average yields, the report said.

 

Argentina looks to be a different story. Light to moderate rain was seen in the central grain belt during the weekend. Additional rains are expected to give the crop a boost through Tuesday followed by drier weather Wednesday-Sunday, Meteorlogix said.

 

Higher temperatures and rainfall last week reversed the cold, dry conditions that had been challenging the 2007-08 wheat crop, the Buenos Aires Cereals Exchange said in its weekly crop report. While the rainfall was insufficient in some of the southern and western areas of the pampas, the moisture boosted the young wheat crop across much of the agricultural heartland, according to the Rosario Grain Exchange.

 

According to the Buenos Aires Exchange, 65% of Argentina's wheat area is in good or very good condition; 27% is in average condition; 7% is in poor condition; and 1% is in very poor condition.

 

"Soil moisture has improved significantly across the main growing areas of central Argentina during the past week," Meteorlogix said. "This will improve conditions for emerging and developing wheat."

 

In other supply news, French 2007-08 cereal output is now forecast at 59.0 million metric tonnes, down from last month's projection of 60.6 million tonnes. The new forecasts represent a drop of 4.4% on the year and 8.1% on the previous five-year average.

 

The French Ministry for Agriculture and Fisheries now estimates soft wheat output at 31.7 million tonnes, down 1.2 million tonnes from the August estimate and a 4.9% drop on the year.

 

Global demand for wheat, meanwhile, remains strong. Pakistan said it planned to import 1 million metric tonnes of wheat as a reserve buffer stock to check soaring domestic prices of flour.

 

Pakistan has about 1 million tonnes in its strategic wheat reserve, while the country has harvested 23.5 million tonnes of wheat from the current 2006/07 crop. Annual domestic demand is 21 million tonnes.

 

"Untraditional (importers) are stepping up to the plate," a CBOT floor trader said.

 

Iraq is planning to resume wheat purchases from Australia's wheat supplier AWB Ltd. (AWB.AU) and other Australian suppliers, the head of the Grain Board of Iraq said. He didn't specify how much wheat Iraq plans to buy from Australia.

 

In other news, wheat prices in China's major wheat growing regions were little changed in the week to Monday, as there was little market activity because most mills had already bought enough to stock up ahead of the week-long holiday in October, analysts said. Wheat purchase prices in Shandong province were quoted at RMB1,520-RMB1,580/tonne, unchanged from a week ago.

 

U.S. wheat prices pulled back a bit from record highs last Wednesday and Thursday. CBOT December wheat prices Friday closed higher and near mid-range, and it looks as though the markets could recover those losses this week, a CBOT floor trader said.

 

Still, come near-term chart damage has occurred to begin to suggest that a near-term or even a major top is in place, a technical analyst said. The bulls' next upside price objective is to push and close CBOT December wheat above the contract high of US$9.07, he 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 high of US$8.59 and then at US$8.65. First support lies at Friday's low of US$8.30 and then at US$8.14.