January 11, 2010

 

US Wheat Outlook on Monday: Seen up, looking for index fund buying

 

 

U.S. wheat futures are expected to start stronger Monday on follow-through buying and supportive outside markets, with traders looking for index funds to return as buyers at the close.

 

Chicago Board of Trade March wheat is called to open 2 to 4 cents per bushel higher. In overnight electronic trading, CBOT March wheat edged up 3 1/2 cents to US$5.72.

 

Wheat extended gains overnight after index fund buying at the close of trading Friday pushed the markets to close solidly higher, trader said. Index funds bought the grains as they began to rebalance positions and are expected to keep buying the markets this week.

 

Traders on Tuesday will be waiting for the close to watch for a repeat of the index fund buying, a CBOT floor trader said. The focus on Day Two of the rebalancing is on money flows, he said.

 

Support from index funds will support prices even though wheat's supply and demand storyline is bearish, traders said. U.S. wheat is already too expensive to be competitive on the world market, and further gains price it out of the market more, they said.

 

"Current prices are too far off the fundamental mark to be sustained post index reallocation," a trader said.

 

Outside markets look supportive for the grains, with crude oil rising and the U.S. dollar slipping, traders said. A soft dollar is often seen as friendly because it increases investors' appetite for risk and makes U.S. grains more attractive to foreign buyers.

 

Despite worries about threats from cold weather, conditions for dormant hard red winter wheat in the U.S. Plains will be "generally favorable," according to private weather firm DTN Meteorlogix. Snow has insulated most of the crop from the cold, producers said.

 

Traders are waiting for the U.S. Department of Agriculture to issue crop reports Tuesday, including estimates on U.S. winter wheat planting and on ending stocks. There should be some positioning ahead of the release of the reports, a trader said.

 

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. The 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 Friday's high of US$5.70 and then at US$5.75. First support lies at US$5.60 and then at US$5.50.