November 22, 2006

 

US Wheat Outlook on Wednesday: Higher start on overnight, Egyptian buy

 

 

U.S. wheat futures are expected to start Wednesday's day session firmer after posting solid gains overnight and with support from an Egyptian purchase, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 5 to 7 cents per bushel higher.

 

In e-CBOT overnight trade, December wheat was up 7 1/4 cents at US$4.87.

 

The overnight gains came mainly on follow-through buying from a stronger close to Tuesday's day session, CBOT floor sources said. Follow-through buying will likely continue in Wednesday's day session, sources said.

 

Egypt also said Wednesday it had bought 60,000 tonnes of U.S. soft red wheat, along with 120,000 tonnes of French wheat. The purchase was on a free on board basis for shipment Dec. 21-31.

 

The Egyptian purchase was seen as "friendly" for wheat prices, although the U.S. still needs to attract even more export business, sources said.

 

"It's not a home run but it's a single," Vic Lespinasse, a CBOT floor analyst for A.G. Edwards & Sons, said about the sale to Egypt.

 

Armenia, meanwhile, said it will need to import about 290,000 tonnes of wheat in the 2006-2007 marketing year, probably from the U.S. and Russia. Armenia's wheat harvest this year fell by 47.2% compared to last year because of drought, the government said.

 

Japan bought 170,000 tonnes of wheat in a routine tender concluded Wednesday for shipment between Jan. 1-31. The tender included 54,000 tonnes of U.S. dark northern spring wheat, 31,000 tonnes of U.S. hard red winter wheat and 5,000 tonnes of U.S. western white wheat.

 

Syria said Wednesday it sold 14,000 metric tonnes of wheat in a tender on a free on trucks basis for delivery until the end of January 2007. Iraq bought 9,000 tonnes of soft milling wheat, and Turkey bought 5,000 tonnes of durum wheat, an official said.

 

There are ideas U.S. wheat prices need to decline to attract more business, a CBOT floor trader said.

 

"Global supplies are tightening, and we need to make more sales," the trader said.

 

Although CBOT December wheat closed Tuesday near the session high, the wheat market is still in a well-defined four-week-old down-trending channel on the daily bar chart, a technical analyst said. It will take a push in prices above trend-line resistance at US$5.00 to push above the down-trending channel, he said.

 

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

 

First resistance is seen at this week's high of US$4.86 and then at US$4.90. First support lies at Tuesday's low of US$4.72 1/2 and then at US$4.70, he said.

 

Chinese grain prices were down overnight, a CBOT floor source noted.

 

China is expected to auction 1 million to 1.5 million metric tonnes of wheat early next week, a trader said Wednesday.

 

As part of efforts to protect farmers' incomes, China's central government designated state-owned warehouses in six major wheat growing provinces to buy wheat at minimum purchase prices from June 1 to Sept. 30. Local grain administrations hold auctions to sell the wheat bought under the minimum purchase price program.

 

There have been concerns that dryness in a China's Shandong province, a key wheat-producing region, has been stressing crops. Shandong and Henan province, another wheat-growing area, will likely stay dry in the coming days, DTN Meteorlogix weather firm said.

 

Meteorlogix said conditions also will likely stay dry or receive only scatted showers in the Ukraine for the next 10 days. Soil moisture for wheat will diminish, the firm said.

 

Soil moisture also will be depleted in the U.S. Southern Plains during the next five days as very warm and dry weather continues, the weather firm said.

 

In Argentina, showers and light rain are forecast for Friday or Saturday and will help maintain soil moisture for winter and summer crops, Meteorlogix said.

 

Argentina's Agriculture Secretary has proposed a system of wheat price controls that would force wheat exporters to sell wheat to domestic millers below market rate, a government spokeswoman said. The system would obligate exporters to sell 1/2 a tonne of wheat to millers at below market rate for every tonne exported, a source said.

 

The proposal follows sharp criticism from farm groups of the government's policies of keeping down domestic wheat and beef prices. The policies have been a boon to domestic consumers and exporters, but at the expense of producers, farmers complain.

 

Exporters have enjoyed higher profits based on purchases made at deflated domestic prices and export sales at high international prices.