August 26, 2008


US Wheat Outlook on Tuesday: 25-30 cents down on southern hemisphere rains



Improving world crop conditions and spillover pressure should pressure U.S. wheat futures at the start of Tuesday's day session.


Chicago Board of Trade December wheat is called to open 25 to 30 cents per bushel lower. In overnight electronic trading, CBOT December wheat dipped 26 1/4 cents to US$8.38 1/2.


The markets feel comfortable trading lower because forecasts for rain in Australia and Argentina mean there is "not a panic situation" in the Southern Hemisphere, an analyst said. Drought has slashed production Down Under for the past two years but the crop looks better this year.


A slow moving trough of low pressure is expected to bring light rains to Australia's west and central growing belt and at least moderate rains to the east during the next five to seven days, DTN Meteorlogix said. Rainfall, if verified, would "maintain favorable prospects for this crop," the private firm said.


Showers during the next one to three days in Argentina will likely be heaviest over eastern and northern Buenos Aires and in southern Sante Fe, Meteorlogix said. Rainfall is needed for wheat, especially in the west, the firm said.


In the U.S., there are no significant concerns for the spring wheat harvest, despite a little light rain in the northern Plains during the next day or two, Meteorlogix said. The harvest was 61% complete as of Sunday, down from the 83% at the same time last year and the average of 72%, according to the U.S. Department of Agriculture's weekly crop progress report.


The world is expected to produce a record wheat crop in 2008-09 thanks to expanded plantings and mostly favorable weather. The big crop is seen as bearish, as it will help rebuild ending stocks drained last year amid global crop failures, according to projections.


Strength in the U.S. dollar is another bearish factor for the grains, traders said. Weakness in CBOT corn and soybeans could also weigh on wheat, they said.


Technical selling could add pressure after CBOT December wheat last week failed to take out June's high, an analyst said. The contract hit a high of US$9.92 in June and US$9.59 1/2 last week.


"Bulls have faded badly and a near-term top is likely in place," a technical analyst said.


The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$8.40, the technical analyst said. The bulls' next upside price objective is to push and close December futures prices above psychological resistance at US$9, he said.


First resistance is seen at US$8.78 and then at US$8.90. First support lies at Monday's low of US$8.64 and then at US$8.50.


In other news, Ukraine's Agriculture Ministry said 11% of the total wheat harvest to date is high-quality grades 1-3, down from 40% last year. The remaining 89% of the crop is feed wheat, it said.

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