October 17, 2006

 

US Wheat Outlook on Tuesday: Prices seen up on momentum, low supply

 

 

U.S. wheat futures are expected to start Tuesday's day session higher on carryover momentum from a late rally Monday and continuing concerns about global production, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 3-5 cents per bushel higher.

 

In e-cbot overnight trade, December wheat was 3 3/4 cents higher at US$5.46 1/4.

 

"There's not much news, but we've still got a really tight global supply," a CBOT floor source said.

 

World supply concerns and, in particular, a severe drought in Australia continue to give underlying support to wheat prices, sources said. A new Australian government report predicted wheat yields would be in the lower third of historical averages, reinforcing forecasts of sharply lower production.

 

Some analysts expect Australia's wheat output to be around 10 million metric tonnes, down from 25 million tonnes last crop year. There also has been talk of the crop going to as low as 6 million tonnes.

 

Australia, however, will produce enough wheat to meet domestic demand, the managing director of ABB Grain Ltd. said. He added that there will be sufficient surplus to export some wheat.

 

DTN Meteorlogix said 0.25-1.00 inch of rain is possible through New South Wales and southern Queensland during Friday into Saturday.

 

"Australia isn't in deficit for grain and we expect feed, malting barley and other grains to be exported," said the ABB Director Michael Iwaniw.

 

A technical analyst said CBOT bulls are still very strong and the wheat market is still the leader in the grains. The bulls' next upside price objective is to produce a close above strong resistance at Monday's high and the contract high of US$5.50 a bushel. The next downside price objective for the bears is closing prices below solid support at US$5.00 a bushel.

 

First resistance is seen at US$5.50 and then at US$5.60, he said. First support lies at US$5.30 and then at Monday's low of US$5.20.

 

In other news, a quota system imposed by the Ukrainian government on grain exports will be enforced until the state grain reserves are full, the prime minister said in a statement. The reserves are expected to be full by the end of the year, he said.

 

The Ukraine imposed an export quota of 400,000 tonnes of wheat until the end of the year.

 

In China, the Henan province auctioned about 220,000 tonnes of wheat Monday, a local industry official said Tuesday. The province, a major wheat producing region located in central China, had originally planned to auction 300,000 tonnes, according to local traders.

 

Japan, meanwhile, said it is seeking 125,000 tonnes of U.S. and Australia-origin wheat in a tender to be concluded Thursday, an agriculture ministry official said Tuesday. The tender said 70,000 tonnes would come from the U.S.