December 10, 2009

 

US Wheat Outlook on Thursday: Down 1-3 cents on ample supply, reduced use

 

 

U.S. wheat futures are expected to start lower Thursday after the U.S. Department of Agriculture reaffirmed large ending stocks and cut its forecast for domestic food use.

 

Chicago Board of Trade March wheat is called to open 1 to 3 cents per bushel lower. In overnight electronic trading, CBOT March wheat slipped 3/4 cent to US$5.34 1/2.

 

The USDA, in its December supply and demand report, raised its estimate for 2009-10 U.S. wheat ending stocks to 900 million bushels from its November estimate of 885 million. The average of analysts' estimates in a pre-report survey was 886 million.

 

The increase reflected a lower expected food use "based on the latest mill-grind data from the U.S. Census Bureau and indications of 2009-crop quality that suggest higher-than-normal flour extraction rates again in 2009/10," the USDA said. Higher flour extraction rates reduce the quantity of wheat needed for milling.

 

The decreased estimate for domestic use was another hit for the wheat market, which has faced a bearish fundamental storyline for months due to sluggish export demand. Large world supplies and competition for export business from other countries have cut into U.S. export sales.

 

The USDA increased its estimate for world wheat ending stocks to 190.9 million tonnes from its December estimate of 188.3 million. As expected, it raised its estimate for Canada's crop and trimmed its forecast for Australia's crop.

 

In a separate report, the government said weekly U.S. wheat export sales were 245,200 tonnes, below trade estimates of 300,000 tonnes to 500,000 tonnes. Export sales were down 37% from the previous week and 35% from the prior four-week average, according to the USDA.

 

"We're not using it in the export sector," Joe Victor, vice president of marketing for Allendale, said about wheat. "What does USDA do this morning? They graze us by saying we're not even using it domestically."

 

In other export news, Japan said it bought 131,000 tonnes of wheat, including 91,000 tonnes from the U.S., in a routine tender. India's government, meanwhile, plans to sell about 1.5 million tonnes of wheat from its stocks through the National Spot Exchange starting Dec. 16, according to a report in the Business Line newspaper.

 

Despite unsupportive fundamentals, U.S. wheat could see a short-term corrective bounce because the markets have closed lower for the past seven sessions, Barclays Capital said in a note. However, technical signals point to a bearish trend, the firm said.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the November low of US$5.07 1/2, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.70, he said.

 

First resistance is seen at Wednesday's high of US$5.44 1/2 and then at US$5.52, the technical analyst said. First support lies at Wednesday's low of US$5.32 1/2 and then at US$5.25, he said.