November 16, 2006

 

US Wheat Outlook on Thursday: 1-2 cents higher in two-sided trade

 

 

U.S. wheat futures are expected to start Thursday's day session modestly higher after firmer overnight action with continued spillover technical strength from corn, sources said.

 

But weekly export sales were on the low end of analysts' expectations and considered somewhat bearish, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 1-2 cents per bushel higher in a two-sided trade.

 

In e-CBOT overnight action, CBOT December wheat was 1 3/4 cents higher at US$4.83 1/4.

 

Corn continues to be the leader of the grains and will likely direct wheat's price movements during the day, a CBOT floor source said.

 

"Wheat's looking for leadership," the source said.

 

Weekly export sales for the week ended Nov. 9 totaled 323,100 metric tonnes, 44% below the previous week and 47% under the prior 4-week average, the U.S. Department of Agriculture said. Major buyers were Nigeria, which took 79,200 metric tonnes, and Israel, which took 45,600 tonnes, the USDA said.

 

Analysts had estimated sales would fall between 250,000 tonnes and 600,000 tonnes. There are ideas that wheat prices need to fall lower to attract more business, sources have said.

 

Thursday's day session is expected to be choppy and two-sided, a CBOT floor trader said.

 

"Sales are weak," he said.

 

Japan said it bought 125,000 metric tonnes of wheat in a routine tender concluded Thursday. The purchase includes 37,000 tonnes of U.S. dark northern spring wheat, 20,000 tonnes of hard red winter wheat and 8,000 tonnes of western white wheat.

 

Four South Korean flour mills have jointly bought 21,500 metric tonnes of U.S. No.1 wheat in a tender concluded Wednesday for shipment between Jan. 1-31. The purchase tender includes 11,500 tonnes of western white wheat, 4,200 tonnes of hard red winter wheat and 5,800 tonnes of dark northern spring wheat.

 

"It's all routine buying," the CBOT trader said.

 

China, meanwhile, has bought 41.25 million metric tonnes of its domestic wheat in a minimum purchase price program this year, the China Economic Times reported Thursday. Chinese government-owned warehouses in six major regions have bought the wheat in hopes of protecting farmers' incomes, sources said.

 

In other news, Strategie Grains held steady on its estimate for 2006-07 European Union grain production in its monthly report Thursday. The E.U. wheat balance shows a small surplus from a month ago in a "precarious world situation," the report said.

 

Total E.U. grain production was left unchanged at 242.6 million tonnes, which is down by almost 14 million tonnes from the previous year. Soft wheat production was revised up by 0.3 million tonnes to 108.6 million tonnes, compared with 114.8 million tonnes in 2005-06.

 

Looking at the weather, the driest areas of the U.S. Southern Plains wheat belt are expected to stay mostly dry during the next seven days, DTN Meteorlogix said. That includes most of Oklahoma and south-central Kansas.

 

Rain and cooler weather are seen in the Midwest during the next 72 hours, and poor drying weather should continue for two to three days after that, the weather firm said.

 

In the Ukraine, western crop areas are expected to be mainly dry during the next 10 days, which will reduce available soil moisture for wheat, Meteorlogix said.

 

Wheat industry sources have expressed concerns about drought conditions in Shandong province, one of China's key wheat producing regions.

 

Meteorlogix said the weather there should stay mainly dry during the next five to seven days. There is the chance for showers in the south, the firm said, noting that rain is needed after a "very dry" five-to-six week period.

 

In Australia, drier weather during the next five to seven days will aid the harvest of the drought-reduced wheat crop, Meteorlogix said.

 

Argentine crops saw scattered thundershowers move in during the past 24 hours to end a recent hot spell, Meteorlogix said.

 

The next downside price objective for the bears is closing CBOT December wheat prices below support at US$4.60 a bushel, a technical analyst said. Bulls' next upside price objective is to close prices above solid resistance at US$5.00 a bushel.

 

First resistance is seen at US$4.85 and then at US$4.90. First support lies at Wednesday's low of US$4.80 and then at US$4.75, the analyst said.