November 10, 2008
US Wheat Outlook on Monday: Seen 8-12 cents up on spillover support
Strength in neighboring and outside markets should pull U.S. wheat futures higher at the start of Monday's day session, with little impact seen from fresh government crop data.
Chicago Board of Trade December wheat is called to open 8 to 12 cents per bushel higher. In overnight electronic trading, CBOT December wheat rose 12 1/4 cents to US$5.33 1/4.
Wheat should feel support from firm CBOT corn and soybeans, said Brian Hoops, president of Midwest Market Solutions. The grains and soybeans will get a boost from gains in crude oil and weakness in the U.S. dollar, he said. Grains also will keep an eye on the stock market.
A rally in crude oil can spill over into the grains because funds often trade in a basket of commodities and because ethanol is made from corn. A weak dollar is seen as bullish because it gives foreign countries more buying power to import commodities.
"I think [wheat] is kind of a follower with the corn and soybeans," Hoops said. "With the lower dollar, it should be higher."
The U.S. Department of Agriculture issued its November supply and demand report, which showed the government raised its estimate of 2008-09 wheat carryout to 603 million bushels from 601 million last month. The average of analysts' pre-report estimates was for a decrease to 594 million, according to a Dow Jones Newswires survey.
Although it was contrary to expectations, the carryout increase should have "very little" impact on U.S. wheat futures because the trade will be focused on other markets, Hoops said. Indeed, the USDA said "wheat supply and use projections are mostly unchanged this month."
The USDA raised its forecast for global wheat production for the 2008-09 marketing year to 682.4 million metric tonnes, up 2.2 million from last month. The world is expected to produce a record crop thanks to mostly favorable weather and expanded plantings.
Reductions in production forecasts for Australia and Argentina were expected due to a lack of rain in crop areas. The USDA pegged production Down Under at 20 million tonnes, down from its October estimate of 21.5 million, and put production in Argentina at 11 million, down from 12 million in October.
Showers and rain from late last week into the weekend in Australia hit parts of Victoria, New South Wales and Queensland. Rainfall favors any late filling winter wheat, except it may be too late to significantly improve the outlook for wheat in Victoria, DTN Meteorlogix said in a forecast.
Harvesting of winter crops has been delayed by rainfall in Western Australia and in many wheat fields in southern Queensland and northern New South Wales, managers at logistics providers said. Cutting will pick up this week, a Western Australia-based manager said.
In the U.S., there are mainly favorable conditions for early growth of wheat in most areas of the central and southern Plains, Meteorlogix said. Precipitation will favor development, the private weather firm said.
CBOT December wheat Friday closed weaker and near the session low. Wheat bears have the overall near-term technical advantage and have regained downside momentum, a technical analyst said.
The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at the October low of US$4.96 1/2, the analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at last week's high of US$5.87 3/4, he said.
First resistance is seen at Friday's high of US$5.29 1/2 and then at US$5.40. First support lies at last week's low of US$5.13 1/2 and then at US$5.00.