November 10, 2006

 

US Wheat Outlook on Friday: 1/2-1 cent lower on weak export sales

 

 

U.S. wheat futures are expected to start Friday's day session modestly lower in the continuation of a downward trend and on weak export business, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 1/2-1 cent lower per bushel.

 

In e-cbot overnight trade, December wheat rose 1 cent to US$4.89.

 

The slight gains came on light position squaring after wheat futures closed sharply lower in Thursday's day session, a CBOT floor analyst said.

 

There was little fresh news out overnight, and wheat will continue to look to corn for direction, sources said. Concerns about slow export sales remain bearish for prices, said Shawn McCambridge, an analyst with Prudential Financial.

 

U.S. weekly wheat export sales totaled 572,900 metric tonnes for the week ended Nov. 2, 39% below a week earlier and 9% under the prior four-week average. Annual sales remain significantly down this year compared to last year.

 

"There are still concerns about the pace of business," McCambridge said. "Upside is going to be limited until we start attracting more business."

 

As long as corn prices aren't breaking sharply lower, wheat futures will likely be steady but choppy and range-bound, McCambridge said. Traders are looking to the weekend for news of fresh export business, sources said.

 

In its November supply/demand report, the USDA on Thursday left unchanged its estimate for 2006-07 U.S. wheat ending stocks at 418 million bushels. Analysts had expected the USDA to increase the ending stocks because of weak export business.

 

The USDA forecast for U.S. wheat exports in the 2006-07 marketing year also remained steady in the November report at 2.07 billion bushels.

 

Traders said the report was neutral to slightly bearish for prices because the USDA increased its production estimate for the former Soviet Union.

 

"We didn't see that coming," on CBOT floor source said.

 

In the Ukraine, wheat growth will continue to slow as the crop heads into dormancy, DTN Meteorlogix said. Soil moisture is adequate for now but rain will be needed in the spring as the crop begins to grow again, the private weather firm said.

 

In China, dry weather is expected to continue in the Shandong province, a key wheat growing area that has seen drought conditions, Meteorlogix said.

 

Argentina also will see dry and warm to hot weather during the next five days, although forecasts suggest a chance for showers next Wednesday or Thursday, the firm said.

 

Argentina's spot wheat market failed to see a trade again Thursday, as producers balked at low offers made by exporters and millers, according to analysts.

 

Although unconfirmed, analysts believe exporters made an agreement with the government not to pay over US$120.22 per tonne for old-crop wheat. The government is seeking to control inflation in domestic wheat prices and has granted a number of tax breaks to millers in recent weeks.

 

In the U.S., meanwhile, colder weather is predicted in the Southern Plains for the next couple of days but without significant rainfall, which is still needed, Meteorlogix said.

 

The eastern Midwest should see wet conditions in the eastern belt that will slow harvest progress, the firm said.

 

The next downside price objective for the bears is closing prices below support at last week's low of US$4.78 a bushel, a technical analyst said. The bulls' next upside price objective is to close prices above solid resistance at this week's high of US$5.19 a bushel, the analyst said.

 

First resistance is seen at US$4.95 and then at US$5.00. First support lies at Thursday's low of US$4.86 and then at 4.80.

 

A CBOT floor trader added that December contracts are rolling over.

 

"I think wheat looks like its letting some technical length out of the market," the trader said.