October 3, 2006

 

US Wheat Outlook on Tuesday: Down as rains fall in Argentina

 

 

Losses overnight across the e-cbot market are expected to pressure U.S. wheat futures on Tuesday, along with news of heavy rains in Argentina's wheat regions and forecasts for more rain Tuesday.

 

Also, there are hints of moisture in long-range outlooks for Australia's wheat areas.

 

Benchmark Chicago Board of Trade December wheat is called to open 5-6 cents weaker.

 

In e-cbot overnight trade, December wheat was 6 1/4 cents weaker at US$4.39 3/4.

 

News of heavy rains in Argentina's parched croplands Monday is likely to weigh on prices as the rally in wheat is generally on supply-side worries. The rain brought desperately needed relief to the young wheat crop said Cesar Rebella, director of Argentina's Institute of Climate and Water at the National Institute of Agricultural Technology, or INTA.

 

Further, more rain is likely, Rebella said, adding some areas saw more than 70 millimeters of rain. The rainfall arrived just in time to boost Argentina's 2006-07 wheat crop, which is just entering its phase of highest water needs, he added. Before the rains, the Buenos Aires Cereals Exchange saw crop conditions decline, with 33% of new-crop wheat was in bad condition on 33% of the area planted, compared with 30% in bad condition a week ago, while wheat in good condition was 46%.

 

"This news from Argentina takes a bit of the bullish edge off the bad news from Australia," one long-time analyst said.

 

DTN Meteorologix also said there's a good chance for rain to fall in the driest areas of northern La Pampa and Cordoba provinces Tuesday and Tuesday evening.

 

In Australia, long-range weather charts Tuesday suggest a chance for showers developing in northern New South Wales and southern Queensland Oct. 10. However, the firm cautions, "this is a long range outlook and subject to significant day to day changes." The firm mentions this rain event was at least hinted at on Monday's maps as well.

 

DTN Meteorologix noted the Southern Plains appears to be drier and warmer than normal during the five to seven day period, but the weather firm said some rains are possible in the longer-range.

 

Technical analysts said it's likely wheat has run into some profit taking after the recent run up. The noted CBOT December wheat futures ended firmer on Monday, but at the lower end of the day session's trading range. Although the most-active contract etched out new four-month highs, the contract high of US$4.63 remains out of reach. However, on monthly continuation charts, analysts point out the nearby wheat contract is at 10-year highs, a chart oddity.

 

At the Kansas City Board of Trade, similar action occurred Monday, with the market "lucky to finish the day two (cents) higher. Supply side concerns shot the market to the daily highs. This run higher quickly failed on lack of new export demand," analysts at Man Financial said.

 

There was chatter on Monday of wheat sales to Iraq and Tuesday, the U.S. Department of Agriculture said 200,000 of hard red winter wheat was sold to Iraq for 2006-07. This should lend mild support.

 

Supply bull news is plentiful, but generally visible demand news is lacking, analysts continue to point out and the Man Financial underscored this by saying: "Longer term, we agree with the market that the supply side story is here to stay. In fact we feel that the supply side story will underpin the market for the next 18 months. That all said, we feel the market will be hard pressed to rally further until actual export business is uncovered."

 

A technical analyst said bullish wheat traders still have solid upside technical momentum and will seek a close above solid resistance at the contract high of US$4.63. For bears, the next downside price objective for the bears is a close below US$4.25. First resistance is seen at US$4.50 and then at US$4.58. First support lies at US$4.43 1/2 and then at US$4.40.

 

News from Down Under reaffirms the supply woes. Australia's wheat crop could continue to shrink as September weather, being unseasonably warm, dry and windy, didn't provide the crop with a "soft finish," Mike Chaseling, executive director of farm commodity manager and trader Emerald Group Australia Pty. Ltd., told Dow Jones Newswires. Last month Australia's government estimated the crop at 16.4 million tonnes, but Chaseling said Tuesday: "September's been bad enough that some in the market are talking below 13 million tonnes now."

 

In its weekly crop progress report Monday, the USDA said 54% of the winter wheat crop was planted, compared to 53% in 2005 and the five-year average of 56%. Twenty-five percent of the crop has emerged compared to 24% in 2005 and the five-year average of 27%.