September 30, 2009

 

US Wheat Outlook on Wednesday: Seen lower after USDA affirms big stocks

 

 

U.S. wheat futures are poised to start lower Wednesday after the U.S. Department of Agriculture affirmed that production and stocks are large, traders said.

 

Chicago Board of Trade December wheat is called to open 3 to 7 cents per bushel lower. In overnight electronic trading, CBOT December wheat rose 1 1/2 cent to US$4.49.

 

The USDA, in its quarterly stocks report, said wheat stocks as of Sept. 1 were 2.215 billion bushels, up from 1.858 billion a year earlier. The government's estimate exceeded the average trade estimate of 2.131 billion.

 

"The higher stocks number for wheat is just another reminder that we have plenty of wheat around," a CBOT floor trader said.

 

U.S. all-wheat production for 2009-10, estimated in the USDA's small grains report, came in above expectations at 2.22 billion bushels, compared to the USDA's August estimate of 2.184 billion. The average of analysts' pre-report estimates was 2.196 billion.

 

Of the production data, traders focused on a larger-than-expected increase in the government's forecast for the spring wheat crop. Harvest is wrapping up in the northern U.S. Plains, and there has been talk about big yields.

 

The USDA projected output of spring wheat other than durum at 587 million bushels, compared to its August estimate of 548 million and to the average analyst estimate of 552. The USDA increased its average yield estimate for the crop to 45 bushels per acre from its August estimate of 41.5 bushels.

 

"The spring wheat number, what an amazing scenario," said Jerry Gidel, analyst for North America Risk Management Services. "You moved up 3.5 bushels in one month."

 

The USDA pegged the durum crop at 110 million bushels, compared to its August estimate of 98 million. Analysts had projected the forecast would remain unchanged from last month.

 

The estimate for all winter wheat production came in below expectations at 1.523 billion bushels, compared to USDA's August estimate of 1.537 billion. Traders had expected to see an increase, although there is "still plenty of wheat around," Gidel said.

 

The USDA reports may not bring too much new bearishness into the markets because the comfortable supply situation did not change, a trader said. Non-commercial speculative funds are already heavily short in CBOT wheat, he noted.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$4.25, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.00, he said.

 

First resistance is seen at Tuesday's high of US$4.60 and then at US$4.75. First support lies at Tuesday's contract low of US$4.41 1/4 and then at US$4.30.