August 28, 2008
US Wheat Outlook on Thursday: Lower on technical momentum, big world crop
U.S. wheat futures are expected to open Thursday's day session modestly lower, as anticipation of a large world harvest and technical momentum favor bearish trades.
Chicago Board of Trade December wheat is called to open 6 to 8 cents per bushel lower. In overnight electronic trading, CBOT December wheat dropped 7 1/2 cents to US$8.18 1/4.
"It could be a two-sided trade today, but we could struggle," a CBOT floor trader said. "I wouldn't sell too deep into the hole because we could get boomeranged on corn and soybeans or outside markets. But it's not looking good for the wheat bulls."
The trader noted that bears are gaining support from poor technical signals and reports of rain fueling thoughts of a greater global wheat harvest.
U.S. wheat export sales dropped 60% from a week earlier, according to the U.S. Department of Agriculture's weekly export sales report, released Thursday.
Including a 25,000-metric-tonne sale of '09-'10 crop to the Philippines, export sales totaled 391,900 metric tonnes.
After CBOT Dec. wheat closed near Wednesday's session low and at a new two-week low, "bears have gained solid technical momentum," a market technician said.
The next objective for soybean bears is to push and close "below major psychological support at US$8, " he said, marking first support at Wednesday's low of US$8.20.
As the bears move to penetrate solid technical resistance at US$8.70 barrier, first resistance lies at US$8.40, the technician said.
Friday marks first notice day for the CBOT September wheat contract.
"With the current basis structure, expect large deliveries," said Midwest Market Solutions in its daily opening commentary.
Dry conditions dominate the U.S. northern Plains forecast for the next few days with temperatures in the normal-to-well-above-normal range, DTN Meteorlogix said.
Generally, the outlook offers favorable conditions for the maturing spring wheat crop and harvest throughout the region, the private weather forecasting firm said.
Traders have been looking to forecasts of rain in Australia and Argentina as supportive of large harvest predictions.
Australia features mostly favorable moisture conditions for the current crop needs at this time, Meteorlogix said.
But Argentine showers have been lighter than necessary and the U.S. could benefit in the long term.
Severe drought in the country's northern region, combined with an almost 25% decrease in planted area, augers poorly for wheat output this season, said said national agricultural technology institute, or INTA, climate specialist Hugo Conti.
Farmers have just about wrapped up planting of the 4.5 million hectares seen going to wheat this season, down from 5.85 million hectares planted last season, according to the Agriculture Secretariat.
With domestic need currently pegged at 6.1 million tonnes by the national trade office, or ONCCA, that would leave just 6.2 million tonnes of wheat available for export from the new crop, only 40% of shipments a year earlier.
Brazil, which traditionally buys over half of Argentina's wheat exports, is expected to feel the pinch. Brazil opened up its market to duty-free imports of North American wheat earlier this year due to export restrictions imposed on wheat by Argentina.
