October 10, 2007

 

US Wheat Outlook on Wednesday: Up 8-10 cents; Egypt tender to set the tone

 

 

U.S. wheat futures are expected to start Wednesday's day session 8-10 cents per bushel higher on hopes of securing Egyptian business and on firmer overnight trade, analysts said.

 

In e-cbot overnight trading, Chicago Board of Trade December wheat climbed 10 3/4 cents to US$8.56 1/4.

 

Egypt's state-owned General Authority for Supply Commodities said Tuesday it was tendering to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Nov. 1-15 and/or Nov. 16-30, on a free-on-board basis. GASC will likely buy Russian wheat, but a U.S. purchase would be bullish because the U.S. is already closing in on its export target for the year, an analyst said.

 

As of Sep. 27, 17 weeks into 2007-08 marketing year, U.S. wheat commitments of 23.974 million tonnes were 80% of U.S. Department of Agriculture's target for the year.

 

The wheat markets have struggled in recent days amid a lack of fresh inputs, so a sale to Egypt would help feed the bulls, an analyst said. A breakdown of bids for Egypt's tender shows U.S. wheat looking "a little more competitive" than it has been, a CBOT floor trader said.

 

"We may have priced ourselves back in" to the world market, the trader said.

 

JP Morgan's one-month outlook for CBOT wheat is neutral/bearish. Demand rationing should keep prices above US$7.45 in the near-term but that the bullish storyline of tight supplies is now well known, the firm said.

 

Bullish demand news or a sub-12 million metric tonne Australian crop is needed to prevent a further price decline as attention turns to increased 2008 production, JP Morgan. The Australian Bureau of Agricultural and Resource Economics last month pegged the wheat crop at 15.5 million tonnes, while the USDA put production at 21 million tonnes.

 

The markets also may feel a boost from some short-covering during the day session, an analyst said. Prices are due for a bit of a bounce after closing in negative territory for the past four sessions, they said.

 

CBOT December wheat prices Tuesday closed near the session low, scored a bearish "outside day" down on the daily bar chart and hit a fresh three-week low, a technical analyst said. Some more near-term chart damage occurred, he said.

 

"Bears do now have downside technical momentum to begin to suggest that a near-term market top is in place," the analyst said.

 

The bulls' next upside price objective is to push CBOT December wheat above resistance at US$8.88 1/2, which is the top of Monday's downside price gap on the daily bar chart, he said. The next downside price objective for the bears is pushing prices below solid support at US$8.30. First resistance is seen at Tuesday's high of US$8.75 and then at US$8.88 1/2. First support lies at Tuesday's low of US$8.44 and then at US$8.30.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is pushing December wheat above resistance at US$8.94, which is the top of Monday's downside price gap on the daily bar chart. The bears' next downside objective is pushing prices below solid support at US$8.20. First resistance is seen at US$8.50 and then at US$8.60. First support is seen at Tuesday's low of US$8.43 and then at US$8.30.

 

In other news, Pakistan bought 50,000 metric tonnes of milling wheat from the Black Sea region at US$455 a tonne, basis cost and freight Karachi, and will hold another tender for the same amount later this month, a government official said.

 

In the U.S., winter wheat planting was 58% complete as of Sunday, lagging the 65% reported last year and below the five-year average of 66%, according to USDA. A week ago, 42% of the crop had been sown.

 

In Kansas, 56% of the winter wheat crop was planted, compared to 71% at this time in 2006 and the five-year average of 68%. In Oklahoma, 50% of the crop was planted, down from 62% last year and the five-year average of 70%. The USDA said 29% of the country's winter wheat crop had emerged, down from 34% last year and below the five-year average of 36%. Last week, 16% of the crop had emerged.

 

Conditions look favorable for planting in the U.S. central and southern Plains, DTN Meteorlogix said in a forecast. Some areas could use more rain, but most have adequate soil moisture, the firm said. Rainfall later this weekend or early next week could delay field work, while recharging soil moisture.