October 25, 2006

 

US Wheat Outlook on Wednesday: Seen up 6-8 cents on Australian drought

 

 

U.S. wheat futures are expected to start Wednesday's day session firmer on new forecasts that Australian production levels will be slashed because of a severe drought, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 6-8 cents per bushel stronger.

 

In e-CBOT overnight trade, December wheat was 9 1/4 cents higher at US$5.31 3/4.

 

AWB Ltd., which has an export monopoly on Australian wheat, cut its forecast for wheat production this crop year to 9 million metric tonnes to 11 million tonnes, down from 12 million to 15 million tonnes. The company's original estimate for the year was 25 million tonnes, which matched Australia's production last crop year.

 

Commodity manager and trader Emerald Group Australia Pty. Ltd. has also cut its wheat forecast to 9.5 million tonnes, down sharply from early September when it estimated a range of 13 million to 19 million tonnes.

 

Separately, a U.S. Department of Agriculture attache report stated that Australian wheat production for 2006-07 has been slashed to 12.25 millions tonnes, the smallest wheat crop since the 2002-03 harvest. Drought conditions have caused significant abandonment, with many crops either cut for hay or grazed by sheep, the report stated.

 

DTN Meteorlogix, a private weather firm, said there is some chance for beneficial moisture in the West Australia wheat belt during the next several days.

 

The attache report, however, said the opportunity for effective spring rainfall has now passed.

 

"The moisture deficit created by drought conditions from June through to October will likely constrain Australia grain production over the next 12 months," the report stated.

 

Australian wheat growers and industry sources have said previously that production may be around 10 million tonnes. Nevertheless, a CBOT floor trader said the fresh estimates would likely keep prices firmer.

 

He said the new production forecasts are "just reminding people of the tight situation from a major exporting country."

 

"There's just nothing positive out of there," he said about Australia.

 

In the U.S. Southern Plains, meanwhile, Meteorlogix said there is a chance for widespread rain during the next couple of days. The moisture will help improve soil moisture for wheat, especially in Kansas and southeast Colorado, the firm said.

 

The Ukraine, another country that has suffered dry conditions, also may see showers early next week, Meteorlogix said.

 

A technical analyst said bulls are "regaining power" in the CBOT wheat pit. The bulls' next upside price objective is to produce a close above strong resistance at the contract high of US$5.57 a bushel. The next downside price objective for the bears is closing prices below solid support at US$5.00 a bushel, he said.

 

First resistance is seen at Tuesday's high of US$5.27 1/2 and then at US$5.30. First support lies at US$5.20 and then at Tuesday's low of US$5.11 1/4, the analyst said.