October 5, 2006

 

US Wheat Outlook on Thursday: Mixed start after disappointing exports

 

 

A mixed start is expected for U.S. wheat futures Thursday as disappointing export sales and ideas Wednesday's gains were overbought could lend pressure, but if funds continue to buy the market could bounce.

 

Benchmark Chicago Board of Trade December wheat is called to open mixed.

 

In e-cbot overnight trade, December wheat was 1 cent firmer at US$4.66 per bushel. The U.S. Department of Agriculture released its weekly export sales data for the week ending Sept. 28. Sales totaled 377,800 metric tonnes, versus trade estimates of 350,000 to 500,000 tonnes. This sales figure is 8% below the previous week and the prior 4-week average. The biggest buyers were Mexico, Japan and South Korea.

 

"These sales are probably a good excuse for some profit taking after yesterday's rally," said John Kleist of Top Third Ag Marketing.

 

A technical analyst said with Wednesday's move to new contract highs in CBOT December wheat bulls are now eyeing the US$5 level. Bears now need a close below US$4.50 a bushel to change momentum. First resistance is seen at US$4.69 1/2 and then at US$4.75. First support lies at US$4.63 and then at US$4.58.

 

CBOT wheat futures saw aggressive fund buying on Wednesday, with estimates speculators bought 25,000 contracts. Preliminary open interest data from the CBOT showed rise in open interest of 9,863 to total 506,094 contracts, suggesting new longs were established in the rally.

 

"We are tremendously overbought, but that doesn't mean we can't get more overbought. Yesterday's export demand came as a surprise and pushed us up to new levels. It seems yesterday we had some importers panicking," Kleist said, in reference to Egypt and Iraq's announced purchases.

 

In other export news Japan bought 106,000 metric tonnes of milling wheat Thursday, with the U.S. garnering 40,000 tonnes and Australia and Canada splitting the rest.

 

Ukraine exported 1.64 million metric tonnes of wheat between July 1, the beginning of the marketing year, and Sept. 30, similar to last year's pace the agriculture ministry said Thursday. The ministry said wheat exports were increasing despite a lower harvest this year of 14.3 million tonnes of wheat, compared with 18.7 million tonnes in 2005.

 

Still, if funds continue to buy after Wednesday's rally, wheat futures could go higher.

 

Statistics Canada said Thursday its 2006-07 all wheat production estimate for September was 26.289 million metric tonnes, in line with trade estimates of 25.50 million to 27.00 million. This compares to the August estimate of 25.925 million and the 2005-06 figure of 26.775 million tonnes. The marketing year is August-July.

 

Weather remains on most traders' minds. DTN Meteorologix said in rains in Argentina's northern areas of La Pampa and Cordoba were less than expected during the past 24 hours and more is needed.

 

In Australia, Meteorologix said now long-range charts are reducing the forecast for showers in the eastern belt early next week. "There still may be some shower activity in the area; however, significant improvement appears unlikely at this time. Also of note, hot weather developed in the South Australia wheat areas yesterday as highs exceeded 95F (35C)," they said.

 

DTN Meteorologix noted the Southern Plains are still wanting for rain in the five to seven day period. There remains a slight chance for some moisture, especially in the dry southern regions.

 

Some pressure on wheat could come from news the big wheat purchases by India are causing congestion at local ports, a senior government official said Thursday. There are concerns the backup could cause private companies that have contracted for further imports of up to 1 million metric tonnes of wheat to change plans, as deliveries have to be completed by December to be eligible for exemption from customs duty.

 

Meanwhile, India could raise its intervention wheat price for 2007, with the agriculture ministry submitting recommendations to the government. How much wheat India imports in 2007 will depend on what the government procures from local farmers at the intervention price.