November 9, 2007

 

US Wheat Outlook on Friday: Higher world production, stocks seen bearish

 

 

U.S. wheat futures are expected to start Friday's day session steady to lower on new government estimates for increased global wheat stocks and production, traders said.

 

Benchmark Chicago Board of Trade December wheat is called to open flat to 2 cents per bushel lower. In e-cbot overnight trading, CBOT December wheat slipped 2 1/2 cents to US$7.59 1/2.

 

The U.S. Department of Agriculture projected U.S. 2007-08 wheat ending stocks at 312 million bushels, above the average trade guess of 294 million. The new forecast is a slight increase from the USDA's October estimate of 307 million.

 

World wheat ending stocks, meanwhile, were seen at 109.8 million metric tonnes, up from the October estimate of 107 million tonnes. The increase in world wheat stocks was the biggest surprise in the crop report, said Joe Victor, vice president of marketing for Allendale.

 

"A little bit of cushion is being built up in that world wheat end-stocks number," he said.

 

The USDA also raised its forecast for global wheat production to 603.3 million metric tonnes, a 2.83-million-tonne increase from its October prediction of 600.47 million. The USDA, in its November World Agricultural Supply and Demand Estimates report, attributed the increase to "higher output in Argentina, China and Ethiopia, which more than offsets reductions in Australia and Brazil."

 

Wheat futures are still in a technical downtrend and the increase in world stocks and production add bearish fundamental influences to the markets' storyline, a CBOT floor trader said. There are also bearish concerns about a recent slowdown in U.S. wheat export demand, he said.

 

The bulls' next upside price objective is to push and close CBOT December wheat above psychological resistance at US$8.00, a technical analyst said. The next downside price objective for the bears is pushing and closing prices below solid support at US$7.50, he said.

 

First resistance is seen at US$7.70 and then at Thursday's high of US$7.86 3/4. First support lies at Thursday's low of US$7.60 and then at US$7.50.

 

At the Kansas City Board of Trade, bulls' next upside price objective is pushing and closing December wheat above psychological resistance at US$8.00, the analyst said. The bears' next downside objective is closing prices below solid technical support at US$7.60.

 

First resistance is seen at US$8.00 and then at Thursday's high of US$8.10 1/2. First support is seen at Thursday's low of US$7.87 and then at US$7.75.

 

More rain is still needed for favorable development of hard red winter wheat, traded at the KCBT, in southwest growing areas of the U.S. Plains, DTN Meteorlogix said There may be a chance for beneficial rain in the Texas Panhandle, north Texas and Oklahoma, depending on the outcome of certain weather models, the weather firm said.

 

A cool to cold and wet weather pattern is on tap for central and south Argentina this weekend and next week, Meteorlogix said. Rainfall helps recharge soil moisture for crops while delaying field work, the firm said.

 

Cold weather means two chances for frost in the southern wheat areas, possibly even a light freeze, Meteorlogix said. Any flowering wheat would be at risk from each of these episodes, according to the firm.

 

In Australia, drier weather during the coming days will help to improve conditions for mature wheat and the wheat harvest, Meteorlogix said. Some reports suggest that wheat over southeast Australia may have benefited from rains late in October and early in November.

 

In other news, Russia exported 6.677 million metric tonnes of wheat in July-October, the first four months of the current marketing year, according to the agriculture ministry. That is 2.4 million tonnes more than in the corresponding period in the previous marketing year

 

In Kazakhstan, good weather and a slight increase in planted area produced a record wheat crop in 2007-08, according to a U.S. Department of Agriculture attache report. Total wheat production is forecast at 16 million tonnes, and wheat and wheat flour exports are now forecast at 8.0 million tonnes, the report said. It noted higher export forecasts by local government officials appear unrealistic because of inadequate transportation infrastructure.