January 4, 2010

 

US Wheat Outlook on Monday: Seen up 13-15 cents on spillover support

 

 

U.S. wheat futures are expected to kick off the year with a higher start Monday amid support from surging outside markets and expectations of index fund rebalancing.

 

Chicago Board of Trade March wheat is called to open 13 to 15 cents per bushel higher. In overnight electronic trading, CBOT March wheat jumped 15 cents to US$5.56 1/2.

 

Wheat won't likely set back with gold and crude oil prices soaring, as they are providing a positive tone for the grains, traders said. Weakness in the U.S. dollar adds strength to commodities as it makes them more attractive to foreign buyers, they said.

 

CBOT corn and soybeans climbed overnight with wheat. The markets are linked because funds often trade in a basket of commodities. Corn and wheat also can both be used for animal feed.

 

"Early morning sellers will be sparse," a CBOT floor trader said.

 

Index fund rebalancing is expected to start later this week, with funds exiting from some of their better performing commodities and adding funds to some of their poorer performing sectors, according to AgResource Company. The firm estimated the rebalancing could produce 55,000 to 57,000 contracts of new demand in corn and 16,000 to 18,000 contracts of soybean and wheat demand.

 

There seemed to be some buying in recent weeks in anticipation of the fund rebalancing, which has helped support prices, analysts said. If the rebalancing occurs as expected, it could encourage "buy the rumor, sell the fact" activity, they said.

 

March Chicago wheat on Thursday closed weaker and nearer the session low after a pullback late in the day session. The supply and demand storyline for wheat remains unsupportive, with world supplies seen as large and export demand seen as tepid.

 

Temperatures in the U.S. Midwest aren't expected to be cold enough to damage soft red winter wheat over eastern areas, private weather firm DTN Meteorlogix said. Most fields threatened by frigid temperatures are covered with snow, which protects dormant wheat, an analyst said.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the November low of US$5.07 1/2, a technical analyst said. Bulls' next upside price objective is to push and close March futures prices above solid technical resistance at US$5.63, he said.