January 8, 2010

 

US Wheat Outlook on Friday: Seen down on follow-through selling

 

 

U.S. wheat futures are poised to start weaker Friday on follow-through selling, but activity could be choppy as traders watch for index fund buying and keep an eye on outside markets following a U.S. jobs report.

 

Chicago Board of Trade March wheat is called to open 1 to 3 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 2 cents to US$5.55 3/4.

 

Follow-through selling pressured wheat overnight after a poor close Thursday, traders said. They are waiting to see whether long-only index funds buy the grains as part of a rebalancing process that has been anticipated for weeks.

 

Non-commercial speculative funds, meanwhile, continue to hold a large short position in CBOT wheat, traders said. That leaves the market vulnerable to short-covering.

 

Weakness in the U.S. dollar and strength in precious metals could provide underlying support for the grains, a CBOT floor analyst said. The dollar softened after the government reported larger-than-predicted job losses in December. The Labor Department said the U.S. lost 85,000 non-farm payrolls last month, topping economists' projections for a decline of 10,000.

 

There is a lack of fresh fundamental news out for wheat, traders said. Export demand remains sluggish, and world supplies are large.

 

The U.S. Department of Agriculture on Jan. 12 is slated to issue fresh estimates on supply and demand and its first estimates on U.S. winter wheat seedings. There will likely be positioning ahead of the reports, traders said.

 

Analysts said they expected the government to slightly raise its forecast for carryout and trim its projection for exports. Winter wheat acreage is expected to be down from last year, largely because wet weather and a slow soybean harvest delayed planting of soft red winter wheat in the Midwest and South.

 

There are some worries that freezing temperatures will hurt dormant U.S. winter wheat that is not protected by snow. Country Hedging said in a note that recent snow cover should "shield the crop from any major damage."

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at US$5.40, a technical analyst said. 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 Thursday's high of US$5.68 and then at US$5.75, the technical analyst said. First support lies at Thursday's low of US$5.56 and then at US$5.50, he said.