January 7, 2010

 

US Wheat Outlook on Thursday: Seen pulling back amid spillover selling

 

 

U.S. wheat futures are expected to pull back Thursday amid pressure from other markets, dismal export demand and worries about tightening government credit policies in China.

 

Chicago Board of Trade wheat futures are called to start 4 to 6 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 5 1/2 cents to US$5.61 3/4.

 

Expected losses in neighboring CBOT corn and soybeans and strength in the U.S. dollar are bearish influences on wheat, traders said. Commodities took a hit after China said it raised a key interbank market interest rate, which hints that the government won't tolerate inflation or rising commodity prices, analysts said.

 

"China's decision is having an effect upon all markets everywhere this morning, throwing a dash of rather cold water into the collective speculative face," said Dennis Gartman, publisher of the Gartman Letter.

 

Wheat slumped overnight after rallying Wednesday on technical and fund buying, traders said. Noncommercial speculative funds remain net short about 30,000 contracts in CBOT wheat, which leaves the market vulnerable to short-covering.

 

Traders are waiting to see whether index funds come in as buyers later in the week as part of a rebalancing process. The buying has been expected and has lent support to the grains, but it isn't clear how many contracts they need to buy or have already bought.

 

There is sentiment that Wednesday's gains were overdone, although technical charts look "good," a CBOT trader said. CBOT March wheat faces technical resistance in the area of US$5.65 to US$5.70, he said.

 

A technical analyst said the next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at US$5.40. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the November high of US$6.04 3/4, he said.

 

First resistance is seen at Wednesday's high of US$5.67 3/4 and then at US$5.75. First support lies at US$5.60 and then at US$5.50.

 

Export demand for U.S. wheat remains soft. Weekly U.S. wheat export sales of 93,400 tonnes were a marketing-year low and well below trade expectations of 200,000 to 550,000 tonnes.

 

Business for the week ended Dec. 31 was down 75% from the previous week and 68% from the prior four-week average, according to USDA. U.S. wheat is too expensive to be competitive on the world market, particularly for lower quality wheat, a CBOT trader said.