June 16, 2008

 

US Wheat Outlook on Monday: Seen 10-15 cents higher, following corn

 

 

U.S. wheat futures are expected to start Monday's day session firmer on borrowed strength from surging Chicago Board of Trade corn futures and on concerns about possible crop damage from recent rains.

 

Benchmark Chicago Board of Trade July wheat is called to open 10 to 15 cents per bushel higher. In overnight electronic trading, CBOT July wheat climbed 12 3/4 cents to US$8.94 3/4.

 

Wheat should continue to find spillover support from strong gains in the neighboring corn and soy markets, traders said. The row crops soared overnight on ongoing concerns about damage from flooding in the U.S. Midwest.

 

Corn and wheat, in particular, are linked because both are used for animal feed. Industry members expect livestock producers to feed more wheat and less corn this year as a result of lofty corn prices.

 

"The wheat is following the corn higher and is very much sensitive to the action in corn," an analyst said.

 

There could be some damage to soft red winter wheat in the Midwest from the heavy rains that pounded the region recently, the analyst said. The potential for damage is in the back of traders' minds, although producers in Illinois, Indiana and Missouri said they expected minimal wheat losses from the floods, he said.

 

There also are some bullish concerns about forecasts for slowed harvest activity in parts of the U.S. Plains, an analyst said. Widespread thunderstorms this week will be "mostly unfavorable" for maturing wheat and could cause some delay to cutting in the central and southern Plains, DTN Meteorlogix said. Heavy rains at harvest time last year cut wheat yields in states like Oklahoma and Kansas.

 

In the northern Plains, warmer temperatures this week should help improve conditions for spring wheat, Meteorlogix said. Traders will get an update look at the condition of the crop in the U.S. Department of Agriculture's weekly crop progress report, due out at 4 p.m. EDT.

 

In Argentina, favorable moisture is possible through dry wheat areas this week. Showers look to be light to locally moderate, but heavier activity cannot be ruled out, Meteorlogix said.

 

A weakening front will reach eastern wheat areas of Australia later this week, but only light showers are expected, Meteorlogix said. Rain is needed to ease dryness concerns in wheat regions Down Under.

 

Wheat bulls have gained upside technical momentum recently, as the markets have followed advances in CBOT corn, a technical analyst said. Bulls' next upside price objective is to push and close CBOT July wheat above psychological resistance at US$9.00, he said. The next downside price objective for the bears is pushing and closing prices below solid technical support at US$8.38, he said.

 

First resistance is seen at Friday's high of US$8.93 and then at US$9.00. First support lies at US$8.50 and then at US$8.38.