October 29, 2007

 

US Wheat Outlook: 10-15 cents higher on e-CBOT, outside markets

 

 

U.S. wheat futures are expected to start Monday's day session in positive territory amid follow-through buying from the overnight and spillover support from firmer outside markets, traders and analysts said.

 

Benchmark Chicago Board of Trade December wheat is called to open 10 to 15 cents per bushel higher. In e-cbot overnight trade, CBOT December wheat rose 15 cents to US$8.15.

 

Outside markets, including crude oil, silver and gold, are firmer and should provide carryover strength for the CBOT grains markets, a CBOT floor trader said. Weakness in the U.S. dollar is another bullish factor for U.S. commodities as it gives foreign importers more buying power, he said.

 

There also may be some positioning ahead of the release of an unscheduled crop report from the Australian Bureau of Agricultural and Resource Economics, or ABARE, an analyst said. The report is set to be released at 2300 GMT Monday.

 

The markets have already factored in significant crop losses Down Under due to drought since ABARE issued its last production estimate of 15.5 million tonnes in September. The trade is probably looking for ABARE to put production at about 11 million to 12 million tonnes, a CBOT floor trader said.

 

Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, said the report will likely peg output at 12.0 million to 12.5 million tonnes. The downgrade will reflect the impact on many crops in southeast Australia of dry and warm to hot, windy weather over the past six weeks, he said.

 

Iraq has agreed to resume buying Australian wheat in 2008 if any is available, including from majority exporter AWB Ltd. (AWB.AU), according to a report. However, it is unclear whether Australia will have wheat to sell Iraq due to the drought.

 

In other export news, Egypt's main wheat buyer, the state-owned General Authority for Supply Commodities, said during the weekend that it bought 190,000 metric tonnes of Russian wheat in a tender and none from the U.S. It was not too surprising Egypt didn't buy from the U.S. because Russia has an advantage when it comes to freight costs, an analyst said.

 

Argentina was among the bidders in the tender, offering 120,000 tonnes of wheat at US$305 per tonne. The offer was large and at a low price, indicating Argentina will be a competitor for exports with the U.S. in the coming months, a CBOT floor trader said.

 

China's wheat prices were stable in the week to Monday on dwindling demand and less supply. Ex-factory old wheat prices of state-owned companies in Zhengzhou city, Henan province, a major wheat producing region, were between RMB1,540-RMB1,580 a metric tonne, unchanged from a week earlier.

 

Bears have some fresh downside near-term technical momentum on their side after prices fell last week, a technical analyst said. The bulls' next upside price objective is to push and close CBOT December wheat above solid resistance at US$8.41, which would fill on the upside last week's downside price gap on the daily bar chart, he said. The next downside price objective for the bears is pushing and closing prices below major psychological support at US$8.00.

 

First resistance is seen at Friday's high of US$8.09 and then at US$8.14. First support lies at Friday's low of US$7.95 and then at US$7.85.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is pushing and closing December wheat above solid resistance at US$8.58, which is the top of a downside price gap on the daily bar chart. The bears' next downside objective is pushing prices below solid support at last week's low of US$8.15.

 

First resistance is seen at Friday's high of US$8.33 and then at US$8.43. First support is seen at Friday's low of US$8.20 and then at US$8.15.