October 3, 2007

 

US Wheat Outlook on Wednesday: Sharply lower as markets extend correction

 

 

U.S. wheat futures are expected to start Wednesday's day session sharply lower as the markets continue to correct after recent rallies, traders said.

 

Wheat futures are called to open 18 to 22 cents per bushel lower. In e-cbot overnight trading, nearby Chicago Board of Trade December wheat tumbled 22 1/2 cents to US$9.00.

 

Front-month wheat futures closed limit down, 30 cents lower, at all three U.S. exchanges Tuesday, and follow-through liquidation is expected to weigh on prices again, traders said. The markets were overbought and due to see some profit-taking after climbing to record highs in recent sessions, they said.

 

Despite the setback, wheat's fundamental storyline remains bullish, analysts said. The U.S. Department of Agriculture reported sales of 290,000 tonnes of wheat to unknown destinations, and there are ongoing fears about dryness lowering production potential in Australia.

 

Wheat production Down Under will likely total 12 million to 14 million metric tonnes, according to the chairman of the international unit of AWB Ltd. The crop forecast is below the 15.5 million tonnes projected by the Australian Bureau of Agricultural and Resource Economics in September.

 

The DTN Meteorlogix outlook includes the mention of light rain or showers through West Australia during Monday, but removes the chance of rain in the east. In general, Australia continues to be a much drier than normal weather pattern, with some heat likely over northern crop regions, the firm said.

 

A heat wave in New South Wales state, which usually accounts for almost one-third of national production, "has again dramatically cut estimates of this year's wheat production" after a drought last year, the AWB official said.

 

Crop damage could ease as a cold front brings cooler southwest winds to state's southern half, the government's Bureau of Meteorology said. However, rain isn't forecast with the cold front, according to the bureau, which expects warm or hot northwesterly winds to resume Friday.

 

On Thursday, Statistics Canada is due to release an updated production estimate. A bullish report could give prices a boost, a CBOT floor trader said.

 

In other news, Kazakhstan in the 2007-08 marketing year is planning to export 10 million tonnes of grain, up from about eight million tonnes last year. Producers harvested 22.02 million metric tonnes of grain as of Oct. 2, up from 17.67 million tonnes at the same time last year, according to the agriculture ministry.

 

The bulls' next upside price objective is to push and close CBOT December wheat above resistance at the contract high of US$9.61 3/4, a technical analyst said. The next downside price objective for the bears is pushing prices below support at US$9.00. First resistance is seen at Tuesday's high of US$9.38 and then at US$9.50. First support lies at US$9.17 1/2 and then at US$9.00.

 

No serious chart damage occurred Tuesday, but another limit-down close Wednesday would "spook the bulls and likely cause panic-type long liquidation," the technical analyst said. Floor traders agreed additional technical selling would be triggered if CBOT December wheat slides below psychological support at US$9.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is closing December wheat above resistance at the contract high of US$9.50 1/2, the analyst said. The bears' next downside objective is pushing prices below solid support at US$9.03 1/4, which would fill on the downside an upside price gap on the daily bar chart. First resistance is seen at Tuesday's high of US$9.42 and then at the contract high of US$9.50 1/2. First support is seen at US$9.10 and then at US$9.03 1/2.