April 10, 2007

 

US Wheat Outlook on Tuesday: 2-4 cents higher on USDA report, overnight

 

 

U.S. wheat futures are called to start Tuesday's day session modestly firmer after overnight gains and with support from a friendly new government supply/demand report, traders and analysts said.

 

Wheat futures are called to open 2-4 cents higher per bushel.

 

In e-cbot trading, CBOT May wheat rose 2 cents to US$4.49 1/2, while CBOT July wheat was up 1 1/2 cents at US$4.63 1/2.

 

In the supply/demand report, the U.S. Department of Agriculture pegged U.S. all-wheat ending stocks at 422 million bushels, below the 449 million expected by analysts and the USDA's February estimate of 472 million. The carryout decline reflected increased use of wheat for feed amid high corn prices, traders said.

 

The new "feed and residual" use forecast is for 170 million bushels, up from the March forecast of 145 million bushels. U.S. wheat exports, the USDA said, are now predicted to reach 900 million bushels, up from 875 million bushels.

 

"I can't argue with the feed and residual adjustment reflective of the quarterly stocks report," said Shawn McCambridge, senior grains analyst with Prudential Financial in Chicago. "But I'm surprised by 25 million bushel increase in exports."

 

The lower-than-expected ending stocks are a "little positive" for wheat, a CBOT floor broker added. The report was deemed bearish for corn and soybeans, however, and it will be hard for wheat to stay higher if the other markets are lower, he said.

 

There are, however, other bullish features for wheat, CBOT floor traders said.

 

Technically, CBOT July wheat has produced a bullish V-bottom reversal pattern on the daily bar chart, which suggests a market low is in place, a technical analyst said.

 

The bulls' next upside price objective is to close CBOT July prices above solid resistance at Monday's high of US$4.88 1/2, he said. The next downside price objective for the bears is closing prices below solid support at US$4.50.

 

First resistance is seen at US$4.65 and then at US$4.70. First support lies at Monday's low of US$4.55 1/2 and then at US$4.50.

 

At the Kansas City Board of Trade, a bullish V-bottom reversal pattern also has formed on the daily bar chart to strongly suggest a market low is in place, the analyst added.

 

The bulls' next upside price objective is closing KCBT July prices above solid chart resistance at Monday's high of US$4.95. The bears' next downside objective is closing prices below solid support at US$4.59 1/4.

 

First resistance is seen at US$4.75 and then at US$4.80. First support is seen at US$4.70 and then at Monday's low of US$4.66.

 

Questions and concerns also remain about the impact of freezing temperatures in U.S. winter wheat areas during the weekend, traders said.

 

The USDA said Monday afternoon that, compared with a week earlier, less of the U.S. winter wheat crop was in good-to-excellent condition and more had slumped into the poor-to-very poor category. The decline of the crop's condition was reflecting early reports of damage from a severe cold snap that moved through hard red winter wheat states and soft red winter wheat states during the weekend, an analyst said.

 

The USDA reported 64% of the winter wheat crop was in good-to-excellent condition as of April 8, down from 71% as of April 1. Kansas, the country's top wheat-producing state, had 55% of its crop in good-to-excellent condition, down sharply from 77% a week earlier, the USDA said. Sixteen percent of Kansas' crop was rated very poor-to-poor, up from 4% a week earlier.

 

The decline in crop conditions could continue next week as the USDA gathers more information about damage from the bitterly cold weather, the analyst said.

 

In other news, Japan said it is seeking 145,000 metric tonnes of wheat, including 60,000 tonnes of U.S. wheat, in a routine tender to be concluded Thursday for delivery sometime in June, an agriculture ministry official said Tuesday.