October 10, 2006

 

US Wheat Outlook on Tuesday: Stronger after limit up move on e-CBOT

 

 

U.S wheat futures are called to open firmer Tuesday on limit up overnight trading and fresh news that Australian production this year may be lower than previously thought, sources said.

 

Analysts said Japan's routine weekly tender for 60,000 metric tonnes of wheat, to be divided among the U.S., Canada and Australia, also may propel bullish trading.

 

Benchmark Chicago Board of Trade December futures are called to open 10 to 30 cents higher a bushel.

 

In e-cbot trade, December wheat was up 30 cents at US$5.24.

 

Several wheat futures contracts, including the December, traded and closed at limit up on Monday. Because of the limit up move, the e-cbot system was halted. Some traders which were priced above the US$4.94 high were repriced, the CBOT said Monday. Additionally, a number of December 2006/July 2007 wheat spreads on e-cbot were executed above daily price limits, according to a statement Tuesday from Paul Draths, CBOT vice president and secretary. All trades executed at higher levels must be repriced and submitted for clearing on behalf of the account for which the spreads were executed, according to the statement.

 

CBOT wheat futures Monday posted a new contract high in the move, with KCBT and MGE also closing at limit up.

 

"Who knows, we might do it all over again," one floor source said.

 

Sources said bulls might jump on news that one of Australia's biggest wheat growers said he expected national production to be lower than a report issued Monday that predicted yield would drop to 10 million tonnes this crop year from 25 million tonnes last crop. Instead, the grower, Ron Greentree, said expected the national harvest to be between 6 to 8 million tonnes.

 

Greentree said there will be no surplus wheat for export. He said many farmers had turned their crops over to grazing for livestock or planned to cut it for hay.

 

DTN Meteorlogix said no significant rainfall is expected in any of Australia's growing areas in the next five to seven days.

 

The weather firm said Argentina, which has also experienced drought, had the chance of an "important" rain event Friday but noted that Cordoba and northern La Pampa are still dry.

 

Meteorlogix said the U.S. Southern Plains are receiving rains that are improving soil moisture and that colder weather expected over the next few days should not concern growers.

 

In another potential supply concern, France on Tuesday issued a forecast for a 2006-07 European soft wheat output of 108.9 million metric tonnes, a 5.5% drop in production over last year. An official said production is down due to heat waves in June and July followed by rains in August.

 

French hard wheat was forecast at 2.382 million tonnes, up from 2.149 million tonnes last year.

 

On Monday, Euronext.liffe French milling wheat futures set a record high for daily volume. Monday's milling wheat futures volume totaled 7,333 lots, and the previous daily record was 6,885 lots on Sept. 21.

 

Japan, meanwhile, said Tuesday it is seeking 60,000 metric tonnes of wheat in a tender to be concluded Thursday. The tender includes 20,000 tonnes of hard red winter from the U.S. and 20,000 tonnes each from Canada and Australia.

 

The wheat shipment is expected to arrive between Dec. 1 and Jan. 10.

 

In other news, India said it would likely announce next week an incentive package to encourage farmers to grow wheat. An official added that the intervention price for wheat in the first harvest of 2007 will also be announced next week.

 

A technical analyst said the next downside price objective for CBOT bears is closing prices below solid support at US$4.60 a bushel. First resistance is seen at US$5.00 and then at US$5.05. First support lies at US$4.90 and then at US$4.85.

 

He added that KCBT bulls have solid upside technical momentum and that their next upside price objective is closing prices above the contract high of US$5.39 a bushel. The KCBT bears' next downside objective is closing prices below solid support at US$5.00.

 

First resistance is seen at US$5.39 and then at US$5.45. First support is seen at US$5.25 and then at US$5.20.