October 12, 2007

 

US Wheat Outlook on Friday: Up 5-10 cents on bullish sentiment, spillover

 

 

U.S. wheat futures are expected to start Friday's day session 5-10 cents per bushel higher on carryover buying and bullish sentiments about demand, traders said.

 

A new U.S. Department of Agriculture crop report is seen as mostly neutral for the wheat markets, but strength in neighboring markets could provide spillover support, analysts said.

 

In e-cbot overnight electronic trading, benchmark Chicago Board of Trade December wheat stumbled 6 1/2 cents to US$8.76 1/2.

 

CBOT December wheat finished Thursday's day session locked at limit up, or 30 cents higher, and carry-through buying should help lift prices again in early activity Friday, an analyst said. Demand also remains strong, he said.

 

Although the USDA's October supply and demand report was considered neutral for wheat, some saw it as bullish for CBOT corn and soybeans. Gains in the neighboring markets may lift wheat futures, a veteran CBOT floor trader said.

 

The USDA lowered its estimates for U.S. and world wheat ending stocks, but the adjustments were mostly in line with expectations, an analyst said.

 

"This wasn't a wheat report," the veteran trader said. "I don't think wheat will be a leader today. It'll be a follower of corn and beans."

 

The USDA's supply and demand report put 2007/08 U.S. wheat ending stocks at 307 million bushels, down 55 million bushels from September and at the lowest level since 1948-49. Stocks dwindled as lower production and strong demand expectations more than offset lower projected feed and residual use, the USDA said.

 

World wheat ending stocks of 107 million tonnes are the smallest since 1975-76, according to the USDA. The agency also cut its forecast for Australia's wheat crop to 13.5 million tonnes from 21 million last month.

 

The USDA's changes to the world balance sheet were "a little more aggressive than I thought they would be" but still reasonable, said Shawn McCambridge, analyst with Prudential Financial in Chicago. Australia's wheat crop has suffered from drought.

 

The USDA lowered its estimate for E.U.-27 production to 120.8 million from 121.83 million "based on updated government estimates," the USDA said. Argentina's production was raised 500,000 tonnes to 14.5 million, as timely September rains boosted soil moisture and higher prices encourage more fertilizer usage.

 

FSU-12 production was raised 3.3 million tonnes, mostly reflecting better-than-expected spring wheat yields. Good moisture and generally favorable weather conditions for harvest have boosted production prospects for Kazakhstan and Russia, the USDA said.

 

In other news, the USDA said weekly export sales for the week ended Oct. 4 were 934,000 tonnes, below trade estimates of 1 million to 1.5 million. The sales were 42% under the previous week and 44% below the prior 4-week average, but a trader said demand still looks "solid."

 

"There's a lot of wheat business out there," he 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, a technical analyst said. The next downside price objective for the bears is pushing the contract below solid support at this week's low of US$8.41. First resistance is seen at US$8.88 1/2 and then at US$9.00. First support lies at US$8.75 and then at Thursday's low of US$8.60.

 

At the Kansas City Board of Trade, 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 this week's low of US$8.41 3/4. First resistance is seen at US$8.94 and then at US$9.00. First support is seen at US$8.80 and then at Thursday's low of US$8.61 1/2.