December 5, 2006

 

US Wheat Outlook on Tuesday: 2-3 cents weaker open on spillover pressure

 

 

U.S. wheat futures are expected to start Tuesday's day session modestly lower in follow-through weakness from overnight trading and under pressure from neighboring markets, sources said.

 

Benchmark Chicago Board of Trade March wheat is called to open 2 to 3 cents per bushel lower.

 

In e-cbot overnight trade, CBOT March wheat was 2 1/2 cents lower at US$5.15 1/2.

 

Wheat futures followed CBOT corn and soybeans to the downside Monday and will continue to look to the other markets for direction, an analyst said. There are few other inputs to direct wheat with crops going into dormancy and export news seen as "flat," he noted.

 

The absence of news helps open the door for end-of-the-year profit-taking, the analyst added.

 

Still, a KCBT floor source said tight global wheat ending stocks will keep traders sensitive to weather problems.

 

In the U.S. Southern Plains, there appears to be a chance for needed moisture across the southern wheat belt during the early or middle part of next week, the DTN Meteorlogix weather firm said. In the eastern Midwest, colder temperatures keep crop development slow for at least another three to four days, the firm added.

 

China will be mostly dry during the next five days as wheat crops continue to enter dormancy, Meteorlogix said. Soil moisture is short in the north, the firm noted.

 

Scattered showers in Argentina will maintain mostly favorable conditions for developing crops, Meteorlogix said.

 

In Argentina, agricultural trade was effectively paralyzed Monday as farmers launched a one-week strike to protest government intervention in agricultural markets designed to keep down domestic food prices. Argentina's leading farm groups plan to maintain the strike through Dec. 11 and said their members would "not buy or sell anything" during the protest, with the exception of perishable items.

 

In Australia, meanwhile, a new official forecast for the 2006-07 wheat crop estimated production at 9.7 million metric tonnes, marginally higher than an estimate late October. The figure, however, is down 61% from actual output of 25.1 million tonnes last crop year ended March 31.

 

An industry source said the news was bearish because analysts had expected the crop to be even smaller after a severe drought hit Australia. A CBOT floor source, however, argued the forecast was in line with expectations.

 

"I don't see a bounce from that," he said about the revised Australian forecast.

 

The Australian government Tuesday seized control of wheat exports, transferring a veto over bulk sales to the agriculture minister from the embattled AWB Ltd. The prime minister said the government would consult with growers and other industry members to decide the future of export marketing arrangements.

 

The moves are the government's first response to a report issued last week that found kickbacks AWB paid to Saddam Hussein's former regime during a U.N. oil-for-food program might have broken Australian laws.

 

In other news, Japan said it was seeking 206,000 metric tonnes of wheat in a tender to be concluded Thursday. The tender includes 56,000 tonnes of dark northern spring wheat, 49,000 tonnes of hard red winter wheat and 5,000 tonnes of western white wheat.

 

Syria said Tuesday it sold 25,000 tonnes of durum wheat to an Italian company and 25,000 tonnes of soft milling wheat to an Egyptian company on a free on board basis for shipment at the end of February.

 

Reviewing Monday's day session activity, a technical analyst noted CBOT March wheat prices closed lower but were near the session high. CBOT March wheat is still in a well-defined two-month-old down-trending channel on the daily bar chart, but a solidly-higher close Tuesday would negate the channel, he said.

 

The next downside price objective for the bears is closing CBOT March wheat prices below support at US$5.00. The bulls' next upside price objective is to close prices above solid resistance at last week's high of US$5.28, he said.

 

First resistance is seen at Monday' high of US$5.19 1/2 and then at US$5.25. First support lies at Monday's low of US$5.11 and then at US$5.08, the analyst said.