September 26, 2006

 

US Wheat Outlook on Tuesday: Firmer start on weather, overnight gains

 

 

U.S. wheat futures are seen starting firmer on Tuesday, following overnight gains and underpinned by lingering worries over dryness in the Southern Hemisphere.

 

Benchmark Chicago Board of Trade December wheat is called to open 1-2 cents firmer.

 

In e-cbot overnight trade, December wheat was 2 1/4 cents higher at US$4.16. Corn and soybeans were also firmer, which could provide mild stimulus.

 

"We still have weather worries in wheat. The U.S. could use a little more rain, but we're not nearly as bad off as Australia and Argentina. The weather overseas is friendly," said one long-time grains analyst.

 

DTN Meteorolgoix said in Australia little significant rainfall is indicated during the next seven days.

 

The forecast for Argentina suggests mainly dry weather through the weekend, and Tuesday's long range charts have pushed the chance for rain to next week. Early indications suggest that this rain, if it occurs at all, may favor north-central and northeast areas.

 

Australia's Bureau of Meteorology said Tuesday the eastern region of the country is more likely to face drier-than-normal conditions in the last three months of 2006. In contrast, parts of Australia's northwest face an increased chance of 60%-65% for higher seasonal rainfall, while the rest of the country faces an even chance of at least median rainfall during the coming three months, it said.

 

The dryness is a key factor for keeping wheat futures supported, but there are concerns that each time CBOT wheat futures spend significant amount of time above US$4, demand dries up, several analysts said previously.

 

Man Financial analysts in Kansas City said new export demand is desperately needed for bullish traders to defend the recent rally. "Without it, this market (December KCBT) is on the express train to the US$4.60 area," they said.

 

The trade is waiting for news, if any, from an Iraqi wheat delegation's appearance Tuesday at the Kansas City Board of Trade. The group will meet with trade leaders and hold a short press conference at 11:30 a.m. CDT.

 

Monday, Iraqi Trade Minister Abdul Falah al-Sudani met with U.S. Department of Agriculture Secretary Mike Johanns in Washington, D.C., but said he did not intend to announce an intention to purchase wheat. Al-Sudani will not travel to Kansas City with the delegation.

 

"The trade isn't looking for anything to come out of today, because of what they said yesterday, but who knows, maybe they were just trying to talk the price down. If there's an announcement, it certainly would be bullish, especially if it's in the ballpark of 750,000 (metric) tonnes as has been bandied about," the long-time analyst said.

 

In routine export news, Japan's Ministry of Agriculture, Forestry and Fisheries will seek 105,000 metric tonnes of milling wheat in a buy tender to be held Thursday, an agriculture ministry official said Tuesday. MAFF will buy 60,000 tonnes of U.S. wheat, 20,000 tonnes of Canadian wheat and 25,000 tonnes of Australian wheat for a November shipment.

 

Wheat planting progress is slow. Monday the USDA said 36% of the crop is seeded, versus 38% in 2005 and 39% for the five-year average. Emergence rates are in line with last year, with 10% emerged as of Sunday and 11% in 2005. The five-year average is 14%.

 

"It is a little bit behind schedule, but it doesn't really amount to much right now," the grains analyst said.

 

DTN Meteorologix noted the Southern Plains will need more rain to keep the favorable conditions for early developing wheat, especially through southwest areas. The next five days looks drier; however, there are hints that the 6-10 day period may feature more shower activity.

 

Ukraine harvested 30.37 million metric tonnes of grain to Sept. 25 on 12.369 million hectares, 84% of the total area to be harvested, according to the agriculture ministry.

 

The market is also looking ahead to Friday's grain stocks and small grains summary from USDA. Traders will closely scrutinized the class breakdown. "This breakdown will reset spread ideas" between the markets, the Man Financial analysts said.

 

In other news, ETF Securities Ltd. will list 29 separate Exchange Traded Commodities, or ETCs, on the London Stock Exchange Wednesday, comprising 19 individual securities and 10 index securities, the company said. This will be the first time a single exchange has covered all the world's major commodities or commodity groups: energy, agriculture, livestock, precious metals, and industrial metals.

 

Similar to exchange traded funds, ETCs can be created and redeemed on a continuous basis by market makers, matching the liquidity of the underlying markets.