June 13, 2008

 

US Wheat Outlook on Friday: Seen 7-10 cents lower; traders wait for Egypt

 

 

U.S. wheat futures are poised to start Friday's day session lower on profit-taking, weak outside markets and a firm greenback, with traders waiting to see results of an Egyptian tender.

 

Benchmark Chicago Board of Trade July wheat is called 7 to 10 cents per bushel lower. In overnight electronic trading, CBOT July wheat fell 9 cents to US$8.42.

 

Wheat still has room to pull back after climbing the exchange-imposed limit of 60 cents Wednesday on the back of a limit-up rally in CBOT corn, an analyst said. Wheat needs spillover support to rise, and CBOT corn was only modestly firmer overnight.

 

Outside markets like crude oil are on the defensive, and the U.S. dollar index is firmer. A stronger dollar is seen as bearish for U.S. commodities because it gives foreign countries less buying power.

 

Traders are waiting for the results of a tender for 55,000 to 60,000 metric tonnes of wheat from Egypt's state-owned General Authority for Supply Commodities. The tender is for shipment from July 11-31.

 

A breakdown of bids for the tender shows Black Sea wheat, from Ukraine and Russia, is highly competitive, traders said. Egypt would have to make a big purchase - of 500,000 tonnes or so - to temper bearish sentiment in the wheat market ahead of the harvest of a big world crop, a CBOT floor trader said.

 

Expectations for a big global crop and the advancing U.S. winter wheat harvest are fundamentally bearish for U.S. wheat futures. There are some worries about severe weather impacting the U.S. soft red winter and hard red winter wheat crops, although production should still be solid, an analyst said.

 

Excessive rains have flooded parts of the Midwest recently, raising concerns about production problems for corn and soybeans. However, SRW wheat in Illinois, Indiana and Missouri should see only minimal damage from the wet weather and disease, agronomists said.

 

Bears will probably not press CBOT wheat too hard to the downside ahead of the weekend with the situation still looking bullish for CBOT corn, a CBOT floor trader said. Wheat has been finding direction this week from corn, which has set records on ideas that heavy rains will cut yields.

 

There appears to be a high risk for widespread thunderstorms during the next 10 days through HRW wheat regions in north, central and southeast areas of the central and southern Plains, DTN Meteorlogix said in a forecast. There is at least a slight risk that the storms would occur further to the south and west and impact the harvest, the private weather firm said.

 

The bulls' next upside price objective is to push and close CBOT July wheat above solid technical resistance at Thursday's high of US$8.83, a technical analyst said. The next downside price objective for the bears is pushing and closing prices below solid technical support at US$8.00.

 

First resistance is seen at US$8.69 and then at US$8.83. First support lies at Thursday's low of US$8.37 3/4 and then at US$8.20.