May 19, 2006

 

US Wheat Outlook on Friday: Down 2-4 Cents on profit-taking

 

 

U.S. wheat futures were called to open down 2-4 cents per bushel Friday after this week's rally to a 9-year high in Kansas City Board of Trade hard red winter wheat futures and 3 1/2-year highs in both Chicago Board of Trade and Minneapolis Grain Exchange wheat futures, brokers said.

 

"We've put some pretty good gains in the wheat market in the last couple weeks, and it feels like we're topping out a little bit," said Shawn McCambridge, a grain analyst at Prudential Financial.

 

"We've had some pretty good fund buying, but we didn't see that same kind of activity on Thursday, so that may give some prospective sellers a little bit more confidence to step off the sidelines," he added.

 

"And then, in particular, in Chicago (soft red winter wheat), we don't have the fundamental support for this current price level," McCambridge added. "Now Kansas City does have the support from the production concerns, but there again, we're at a point where we have pretty well priced in what we know. So we're going to have to feed in some unknowns over the next couple of weeks and that will probably come from (U.S.) harvest results."

 

In the overnight e-CBOT session, most-active July wheat closed down 4 1/4 cents at US$4.14 1/4 per bushel.

 

"Bulls still have the solid technical advantage, but they may be getting exhausted at higher price levels," a technical source said of CBOT July wheat. "The next upside price objective for the bulls is closing prices above solid longer-term resistance at the 2002 high of US$4.34 a bushel, basis nearby futures. It would now take a close below solid support at US$4.00 to provide the bears with some fresh downside technical momentum."

 

First resistance for CBOT July was seen at US$4.27 - Thursday's contract high - and then at US$4.34. First support lies at US$4.15 and then at US$4.07 1/2.

 

Kansas City Board of Trade July wheat ended overnight down 2 1/4 cents at US$5.04 per bushel.

 

"Bulls still have the solid technical advantage," said the technical source. "Look for higher volatility in the near term. The next major upside price objective for the bulls is closing prices above longer-term resistance at the 1997 high of US$5.14 a bushel, basis nearby futures. That mark was hit Thursday. A close below support at US$4.70 would provide the bears with some fresh downside technical momentum."

 

First resistance for KCBT July wheat was seen at US$5.14 - Thursday's contract high - and then at US$5.20. First support is seen at US$5.00 and then at US$4.91 - the top of Wednesday's upside price gap.

 

Cash U.S. hard red winter wheat basis bids were mostly steady to slightly weaker Friday, except for a steep 26-cent loss in Port of Catoosa, Okla.; soft red winter wheat basis bids were steady to weak, with a 10-cent loss in Evansville, Ind.; and spring wheat basis bids were mixed, with a 5-cent gain in Minneapolis rail and a 6-cent loss in Billings, Mont., grain merchandisers said.

 

Traders continued to eye forecasts for hot, dry weather near-term for the U.S. Plains, a factor that may be quite detrimental to the remaining hard red winter crop that hasn't already been damaged by drought this year. Harvest continued in the Southern Plains.

 

Overnight U.S. wheat export news was quiet, while traders continued to eye global wheat news including India's wheat tender for 3 million tonnes of wheat for shipment before October, Argentine export news, any potential news from Iraq and new Russian grain harvest estimates.

 

India said it may consider an additional tender to import wheat if it is unable to get the desired amount of specified quality from a recent tender for 3 million tonnes of wheat for delivery to October issued by State Trading Corp. of India, or STC, (512531.BY).

 

U.S. sources have noted the tender sets a maximum limit of 1,000 parts per billion, or ppb, set for the presence of the deoxynivalenol toxin in the imported wheat.

 

U.S. sources have said the standard is unusually high.

 

Wheat Australia Ltd. was poised to walk away from negotiations to sell 350,000 metric tonnes of wheat to Iraq amid frustration in closing a contract, a source close to the deal said Friday.

 

Traders also noted news Friday from Russia's Agriculture Minister that Russia will harvest 70 million to 73 million tonnes of grain in 2006, down from 78.2 million tonnes last year. The estimate was said to be preliminary, with a more accurate estimate due in June.

 

"Without a complete breakdown, it's a bit difficult to say, but I think that's probably within trade ideas," said Prudential's McCambridge. "There again, it's still kind of an unknown until we see harvest results, but I think that number is probably already priced into the market. I think we've already priced in the Ukrainian and Russian losses, a little bit of the EU, and the U.S. losses. Now we're just waiting for some new imput."