January 12, 2010

 

US Wheat Outlook on Tuesday: Seen down on spillover, big world supply

 

 

U.S. wheat futures are expected to start weaker Tuesday on spillover pressure from other markets and expanding world supplies, although a lower-than-expected government estimate for U.S. wheat plantings could limit losses.

 

Chicago Board of Trade March wheat is called to open 7 cents to 10 cents per bushel lower, a floor trader said. In overnight electronic trading, CBOT March wheat tumbled 8 cents to US$5.64 1/2.

 

The U.S. Department of Agriculture, in a supply-and-demand report, raised its estimates for U.S. and world ending stocks from a month ago and cut its forecast for U.S. exports. It pegged U.S. 2009-10 carryout at 976 million bushels, up from its December estimate of 900 million, and world carryout at 195.6 million tonnes, compared with 190.9 million last month.

 

U.S. exports are projected 50 million bushels lower than in December, "reflecting the slow pace of shipments and sales and strong foreign competition as relatively high prices limit opportunities for U.S. wheat," the USDA said. At the projected 825 million bushels, 2009-10 exports would be the lowest since 1971-72.

 

"There's still plenty of wheat around in the world," a CBOT trader said.

 

Spillover pressure from losses in neighboring CBOT corn and soybeans should add pressure to wheat, traders said. The markets are linked and influence one another because funds often trade in a basket of commodities and because corn and wheat can both be used for animal feed.

 

The USDA raised its U.S. corn and soybean production estimates above trade expectations, which was seen as bearish. Wheat may be seen as a "refuge" in the agriculture markets because of the supportive planting estimate, a CBOT floor analyst said. There could be some inter-market spreading, with traders buying wheat and selling corn or soybeans, he said.

 

The USDA estimated 2010-11 U.S. winter wheat plantings at 37.097 million acres, below the average trade estimate of 40.916 million. The estimate was below the lowest number in a pre-report survey of analysts, whose estimates ranged from 38.387 million to 43.5 million.

 

Farmers planted fewer acres because of wet weather and a late corn and soybean harvest that prevented them from getting in their fields. Several states, including Nebraska, Illinois, Indiana, Missouri, and Ohio, are estimated to have planted the smallest amount of wheat on record.

 

"The new-crop planting numbers are quite bullish, compared to pre-release expectations," said Dan Manternach, agriculture services director for Doane Advisory Services.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at US$5.40, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the November high of US$6.04 3/4, he said.