January 3, 2007

 

US Wheat Outlook on Wednesday: 12-15 cents lower on weak fundamental support

 

 

U.S. wheat futures are expected to start Wednesday's day session sharply lower after losses in overnight trading and with a lack of fundamental strength to boost prices, sources said.

 

Benchmark Chicago Board of Trade March wheat is called to open 12 to 15 cents per bushel lower.

 

In e-cbot overnight electronic trade, CBOT March wheat was down 15 cents at US$4.86.

 

There is little fundamental news to support wheat as export demand remains sluggish and there are expectations for increased new-crop production, sources said. CBOT corn and soybeans markets, which also were weaker overnight, could provide further pressure on wheat, a CBOT floor trader added.

 

"Until we find a price level that attracts more demand or the outside markets provide strong support, I think its going to be hard to rally the wheat market," said Shawn McCambridge, analyst with Prudential Financial.

 

Indeed, favorable precipitation that fell on U.S. winter wheat regions for the past two weekends is supporting ideas that the winter wheat crop will be larger, sources noted. Up to three feet of snow fell in some areas of the Plains during the weekend and provided a beneficial blanket of coverage on the wheat, crop specialists said.

 

The DTN Meteorlogix weather reported precipitation "continues to recharge soil moisture" for winter wheat in the U.S. Southern Plains.

 

In the eastern Midwest, meanwhile, warm weather favors the soft red winter wheat crop, although the crop is vulnerable in the event of a turn to much colder weather, the firm added.

 

Aside from wheat's weak fundamentals, traders are hesitant to buy because of uncertainty about what large index funds will do in the New Year, McCambridge noted.

 

"People just want to test the market a little bit and see how it reacts going into the New Year," he said.

 

Wednesday will be the first day trading session since Dec. 29 as open outcry trading at the CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange were closed during the weekend, on Monday for the New Year's holiday, and on Tuesday in observance of a national day of mourning for former President Gerald R. Ford.

 

Reviewing actions from Friday's session, a technical analyst noted CBOT March wheat ended at a weekly low close.

 

Bulls are losing technical momentum, and their next upside price objective is to close CBOT March wheat prices above solid resistance at last week's high of US$5.21 1/2, the analyst said. The next downside price objective for the bears is closing prices below support at the December low of US$4.78 1/2.

 

First resistance is seen at Friday's high of US$5.06 and then at US$5.10. First support lies at Friday's low of US$4.94 1/2 and then at US$4.90.

 

At KCBT, the bulls' next upside price objective is closing March wheat above solid technical resistance at last week's high of US$5.25, the analyst added. The bears' next downside objective is closing prices below solid support at the December low of US$4.98.

 

First resistance is seen at Friday's high of US$5.12 and then at US$5.15. First support is seen at US$5.05 and then at Friday's low of US$5.02.

 

In other news, Australian wheat exporter AWB Ltd. on Wednesday held unchanged its estimate of gross returns from pooled export sales of new crop wheat, despite the potentially negative impact of a stronger Australian currency. Benchmark Australian Premium White grade of 10.5% protein is still estimated to return a gross AUS$242 a metric tonne, free-on-board, unchanged from a review Dec. 11.