March 20, 2008

 

US Wheat Outlook on Thursday: Weaker on follow through, awaiting Egypt

 

 

Follow through selling action is expected to push U.S. wheat futures sharply lower at the start of Thursday's day session, following Wednesday's limit down move at all three exchanges. However, traders are awaiting news on the size of a potential wheat purchase by Egypt.

 

Egypt's state-owned General Authority for Supply Commodities is tendering Thursday to buy at least 55,000-60,000 metric tonnes of wheat for shipment from April 21-30 and/or May 1-10, on a free-on-board basis.

 

GASC also announced a tender for a minimum of 25,000 tonnes of wheat from local suppliers to be paid for in Egyptian pounds on a free-on-trucks basis. The date of delivery for that tender is May 10-31. Results were not available ahead of the market open. GASC had tendered earlier in the week but cancelled it before returning to the world market Thursday.

 

Chicago Board of Trade May wheat is called to open 20 to 30 cents per bushel lower. In overnight electronic trading, CBOT May wheat dropped 38 cents to US$10.36 a bushel. On Thursday, the daily limits have been expanded to US$1.35 at the CBOT and Kansas City Board of Trade. It is 90 cents at the Minneapolis Grain Exchange.

 

"We should be sharply lower this morning and I think that will happen unless Egypt buys a big chunk," said Vic Lespinasse, analyst at grainanalyst.com. "Egypt could have some impact depending on what they do," he added.

 

Outside markets were seen contributing a negative influence to wheat early Thursday, with the dollar posting gains and other commodities showing overnight weakness. "All commodities are in a broad based sell-off, there is a synergistic effect," noted Lespinasse.

 

This morning, USDA released its weekly export sales figures for wheat, for the period March 7-13. USDA said net sales were 17,400 metric tonnes. Standout buyers included Egypt at 69,200 tonnes and Japan at 43,300 tonnes, however, these were partially offset by decreases for Algeria at 123,500 tonnes and unknown destinations for 76,600 tonnes. For the 2008-09 marketing year, net sales totaled 151,000 tonnes.

 

Lespinasse called the weekly export sales "slow."

 

Elsewhere in the news, Kazakhstan will plant wheat this year on 13.5 million hectares, 600,000 hectares more than in 2007, the agriculture ministry announced Thursday. Total grain planted area will increase by about 700,000 hectares to 17 million hectares, which is the largest area planted in the last 10 years.

 

Also, Pakistan may miss its wheat output target of 24 million tonnes for the current 2007-08 crop (November-April), farm ministry officials said Thursday. An Agriculture and Livestock Ministry official, who declined to be named, said crop yield this year has dropped due to a drop in cultivation area as well as a fertilizer shortage during the sowing period.

 

South Korea on Thursday announced an emergency decision to lift import tariffs on 70 price-sensitive products including wheat and corn to help tame rising inflation. The decision was made at a meeting of economic ministers chaired by President Lee Myung-Bak, the presidential office said.

 

Looking at the charts, the bulls' next upside price objective is to push and close CBOT July futures prices above psychological resistance at US$11.00 a bushel. The next downside price objective for the bears is pushing and closing prices below psychological support at US$10.00 a bushel.

 

First resistance is seen at US$10.75 and then at US$11.00. First support lies at US$10.25 and then at US$10.00.

 

The July Kansas City wheat bulls' next upside price objective is pushing and closing prices above resistance at Wednesday's high of US$11.55 a bushel. The bears' next downside objective is pushing and closing prices below support at the March low of US$10.67.

 

First resistance is seen at US$11.00 and then at US$11.35. First support is seen at Wednesday's low of US$10.88 and then at US$10.67.

 

In other news, conditions in hard red winter wheat areas of the U.S. central and southern Plains should benefit from additional rainfall during the weekend. Other than that the region looks drier during the 10 day period, DTN Meteorlogix said in a forecast.

 

The wet weather pattern looks to continue over the eastern and southern Midwest, increasing concerns about spring field work delays. There is a chance that the Delta would trend drier but this is an uncertain forecast as two cold fronts will drop into the region during the period and each could produce showers, the firm said.