October 6, 2006

 

US Wheat Outlook on Friday: Firmer on overnight trade

 

 

U.S. wheat futures are called to open firmer Friday on firmer overnight trading and the idea that bulls still have the upper hand despite Thursday's break.

 

Benchmark Chicago Board of Trade December futures are called to open 3-4 cents up a bushel.

 

In e-cbot trade December wheat was 3 1/2 firmer at US$4.67 1/2.

 

"Given the rally we've had recently, yesterday's sell-off wasn't all that bad," said Vic Lespinasse, a floor analyst with A.G. Edwards and Sons.

 

Thursday CBOT wheat futures posted a new contract high, but settled weaker on profit taking. Preliminary open interest data from the CBOT showed total open interest fell 2,116 contracts to 504,594. In the December contract, open interest fell 1,010 to 258,027 and in July open interest dropped 2,807 to 96,603. Open interest rose in other contract months.

 

While some analysts said wheat could start firmer, a technical analyst said after CBOT December wheat prices closed weaker Thursday following a contract high move, the market might have produced an "exhaustion tail" on the daily bar chart. That is characterized when interest dries up at higher price levels and then prices back off.

 

He added Thursday's contract high of US$4.87 is very strong overhead technical resistance for the bulls to overcome. Furthermore, if selling continues Friday, that suggests a near-term top is in place. For bears to take the upper hand prices need to close under US$4.50. First resistance is seen at US$4.70 and then at US$4.75. First support lies at US$4.60 and then at US$4.58.

 

At the Kansas City Board of Trade, December wheat bulls still have upside technical momentum. First resistance is seen at US$5.06 and then at US$5.10. First support is seen at US$5.00 and then at US$4.95.

 

Still, most analysts have said if the funds return to support, their new long positions any wheat losses will be limited.

 

Lespinasse said the weather outlook for wheat-growing regions globally remains supportive.

 

DTN Meteorologix said there was a chance for widespread coverage of light to moderate precipitation, followed by frost in the Southern Plains next week.

 

In Australia, the firm said any rain during the next seven days will be mainly confined to the West Australia wheat belt.

 

The next chance for rain in the Argentine wheat belt appears to be later next week, according to the firm. Early indications suggest that showers will favor the north wheat areas. The very dry areas of Cordoba and northern La Pampa, along with the southern wheat areas, may see only light showers during this time.

 

A Kansas City analyst said rains in Australia and on hard red winter wheat crops in the U.S. would be important to prices next week.

 

"Given that we are at 25-year lows on world carry outs, we need to see new crop winter wheat here in the states get off to a good start. But, before all we would like to see the wheat crop correct over bought conditions," he said.

 

Support for wheat could come from Argentina's possible export issues. Argentine grain exporters have declared export commitments of 7.26 million metric tonnes of new-crop wheat, surpassing the amount expected to be available for export from the 2006-07 crop. If Argentina cannot fulfill its export commitments, Brazil might need to look elsewhere for wheat needs, since Brazil is Argentina's number one customer, analysts said.

 

As such, Argentine cash and wheat future prices continued to climb on tight supply and heavy export commitments, according to analysts there.

 

In other news, a new licensing system in Ukraine could cause exporters there to fall behind of commitments and create financial losses. The government moved towards the measures because Ukraine's grain export is increasing this year despite a lower harvest, which the government fears may lead to shortages at home.

 

Planting in the Ukraine was ahead of last year, with 5.907 million hectares planted, or 84% of the planned total area, to Oct. 6, compared with 4.638 million hectares on the same date last year. Winter wheat to date was planted on 5.143 million hectares.