November 6, 2006

 

US Wheat Outlook on Monday: 5-7 cents higher on overnight, China drought

 

 

U.S. wheat futures are expected to start Monday's day session firmer on stronger overnight prices and on concerns about drought in China, sources said.

 

Benchmark Chicago Board of Trade December wheat is called to open 5-7 cents per bushel higher.

 

In e-cbot overnight trade, December wheat was 7 cents firmer at US$4.99 1/2.

 

A two-month-old drought in eastern China has damaged wheat crops in a major grain-producing region, according to news reports.

 

Rainfall in the Shandong region is 81% below normal levels since early September, the reports stated, and the drought is expected to cause a drastic reduction in grain output.

 

DTN Meteorlogix, a private weather firm, said China needs more rainfall to support favorable wheat development, especially in eastern areas. Dry weather, however, is expected to continue.

 

A CBOT floor source said the Chinese drought helped prices jump higher overnight but may not be able to support prices through the day session.

 

"We're just flopping around," he said about prices.

 

A technical analyst said CBOT December wheat prices are still trending down from the October high.

 

The next downside price objective for the bears is closing prices below support at last week's low of US$4.78 a bushel. The bulls' next upside price objective is to close prices above solid resistance at last week's high of US$5.10 a bushel, he said.

 

First resistance is seen at US$4.95 and then at US$5.00. First support lies at Friday's low of US$4.85 and then at 4.80, the analyst said.

 

In other news, global trading companies that contracted to supply wheat to India have complained that congestion at ports is delaying the unloading of shipments. They claimed demurrage from the government-owned State Trading Corp.

 

Currently, it takes around 10-15 days for an imported wheat cargo to get a berth at ports on India's west coast. Normally, there isn't any waiting time.

 

"It's a logistical nightmare," a CBOT source said about the delivery back-up.

 

India's domestic wheat sowing, however, is off to a good start, according to new government data. Plantings were estimated at 949,000 hectares as of Nov. 3, up nearly five-fold from 200,000 hectares a year earlier.

 

The higher acreage isn't surprising, a government official said, because growers earned all-time-high prices for wheat harvested in 2006. The sowing progress and subsequent production are factors that will determine the volume of India's wheat imports in 2007.

 

In Australia, meanwhile, a new government statement said a drought that slashed wheat production forecasts was drier than previously thought.

 

According to a historical record dating from 1900, the August-October period was the driest averaged over South Australia and the second driest averaged over Victoria and the Murray Darling Basin, the statement said.

 

Weather services have said it is likely too late for rain to help Australia's crops.

 

Meteorlogix said warmer temperatures and some recent rain in the U.S. Southern Plains will favor developing wheat during the week but more rain is still needed.

 

In the Ukraine, cold weather, snow and some rain during the weekend period likely means field work delays and slowed wheat development this week, Meteorlogix said.

 

Argentina saw rain and thunderstorms during the weekend, the firm said.