September 28, 2007

 

US Wheat Outlook on Friday: Firmer on bullish USDA stocks, crop data

 

 

U.S. wheat futures are expected to start Friday's day session firmer on bullish, lower-than-expected government estimates for U.S. quarterly stocks and wheat production, analysts and traders said.

 

Wheat futures are expected to start 5-10 cents per bushel higher. In e-cbot overnight trading, Chicago Board of Trade December wheat stumbled 5 cents to US$9.28.

 

The U.S. Department of Agriculture, in a small grains report, pegged U.S. wheat stocks at 1.717 billion bushels as of Sept. 1, down 2% from a year ago. The estimate was also below the lowest pre-report analyst guess of 1.775 billion bushels.

 

The USDA lowered its estimate for 2007-08 all-wheat production to 2.067 billion bushels from 2.114 billion in August. The updated estimate is below the lowest pre-report analyst guess of 2.107 billion.

 

All winter wheat production was put at 1.516 billion, down from the USDA's August estimate of 1.538 billion and below the lowest pre-report analyst estimate of 1.531 billion.

 

"This is really pretty bullish for wheat," Louise Gartner, analyst for Spectrum Commodities, said about the small grains report. "Of all the crops that you didn't need to see these kind of (smaller production) numbers, it was wheat. It just continues to solidify the bull mentality."

 

Wheat futures at all three U.S. exchanges this week raced to fresh all-time highs on strong demand for U.S. wheat and shrinking global supplies. Wheat futures slipped overnight, but the markets are "going to brush off this overnight adjustment" and will "probably open close to where we closed yesterday," Gartner said.

 

CBOT December wheat Thursday closed up 15 3/4 cents at US$9.33, while Kansas City Board of Trade December wheat closed up 16 1/2 cents at US$9.19 1/2.

 

"Wheat will carry the torch to the upside again, as the report continues the market's string of bullish news," said Don Roose, president of U.S. Commodities.

 

Brian Hoops, president of Midwest Market Solutions, agreed that the report was bullish for wheat and said he expected the data to support prices. Still, end-of-the-month and end-of-the-quarter profit-taking could put some pressure on the markets, he said.

 

Long-term fundamentals, however, remain bullish, traders said.

 

"Would-be top pickers need to beware, as end-users continue to step up to the plate and buy aggressively at record-high prices," a technical analyst said.

 

The bulls' next upside price objective is to push and close CBOT December wheat above resistance at US$9.50, the analyst said. The next downside price objective for the bears is closing prices below support at US$8.60.

 

First resistance is seen at Thursday's contract high of US$9.46 1/2 and then at US$9.50. First support lies at Thursday's low of US$9.26 and then at US$9.17 1/4 - the bottom of Thursday's upside price gap on the daily chart, the analyst said.

 

It's conceivable that CBOT wheat could climb to US$10 per bushel "before too long," Fortis Bank said. Prices could reach the sky-high price if Australia's wheat areas don't receive plenty of rainfall in the next week or two, the bank said.

 

Australia's wheat areas should remain dry or see only a few light showers during the next seven to eight days, DTN Meteorlogix said in a forecast. Rain is still needed through all major growing regions to prevent further declines in yield potential for reproductive to filling wheat, the private weather firm said.

 

In Argentina, any shower activity during the next seven days will mainly occur in the north and east, Meteorlogix said. Soil moisture conditions are generally favorable for developing wheat due to prior rains, the firm said.

 

In the U.S. central and southern Plains, above-normal temperatures and below-normal rainfall during the next seven days will diminish soil moisture for winter wheat planting, emergence and development, according to Meteorlogix. However, overall conditions at this time are favorable, the firm said.