January 8, 2009

 

US Wheat Outlook on Thursday: 8-10 cents down on follow-through, weak exports

 

 

U.S. wheat futures are set to start lower Thursday on follow-through selling and weak export demand.

 

Chicago Board of Trade March wheat is called to open 8 to 10 cents per bushel lower. In overnight electronic trading, CBOT March wheat sank 10 cents to US$6.03 1/4.

 

The markets are expected to continue a technical setback that began Wednesday as prices came down from three-month highs, a trader said. A rally during the past month was "overdone," he said.

 

Export demand continues to look bearish for the markets, a CBOT floor analyst said. Weekly U.S. wheat export sales of 41,900 metric tonnes were a marketing-year low and down 86% from the prior four-week average, according to the U.S. Department of Agriculture.

 

Egypt's state-owned wheat buyer, the General Authority for Supply Commodities, said it bought 56,000 metric tonnes of Russian wheat in a tender and none from the U.S. The wheat was purchased at US$181/tonne, for shipment Feb. 1-10, on a free-on-board basis, a GASC official said.

 

U.S. wheat prices are considered too high to be competitive on the world market, said Vic Lespinasse, an analyst for grainanalyst.com. The Black Sea, in particular, has been undercutting U.S. prices lately.

 

Traders continue to wait for the results of a tender reportedly issued by Saudi Arabia, analysts said. Saudi Arabia would likely book wheat from Canada or Australia before buying from the U.S., they said.

 

"I think we're just out of the ballpark," Lespinasse said.

 

In other export news, Japan bought 127,000 tonnes of wheat, including 106,000 from the U.S., in a tender concluded Thursday. The tender was routine business and should not support prices, traders said.

 

Losses in crude oil could add pressure to the grains, Lespinasse said. Crude oil is linked to the grains because funds often trade in a basket of commodities and because ethanol is made from corn.

 

"Everything just looks bearish," Lespinasse said.

 

Sharp losses in crude oil weighed on wheat Wednesday, when CBOT March wheat closed lower and near the session low, a technical analyst said. No serious chart damage occurred, but the bulls do not want to see strong follow-through selling pressure on Thursday, he said.

 

"A four-week-old uptrend is still in place on the daily bar chart," he said.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at last week's low of US$5.84 3/4, the technical analyst said. Bulls' next upside price objective is to push and close March futures prices above solid technical resistance at Wednesday's high of US$6.46 1/4, he said.

 

First resistance is seen at US$6.25 and then at US$6.46 1/4. First support lies at US$6 and then at US$5.84 3/4.

 

There is some bullish chatter about the potential for damage to soft red winter wheat from cold weather expected in the U.S. Midwest next week, an analyst said. Cold weather next week "bears watching" as it could damage to any winter wheat not protected by snow cover, if readings fall well under zero degrees Fahrenheit, private weather firm DTN Meteorlogix said.

 

Some winterkill is "normal" every year, an analyst said. It also is difficult to know the extent of any damage until the spring, he said.

 

No significant cold weather threats are expected in hard red winter wheat areas of the U.S. central and southern Plains during the next seven days, Meteorlogix said. However, the Arctic high pressure system heading toward the Midwest region should be monitored, the firm said.