January 13, 2009

U.S. wheat futures are poised to start slightly lower on follow-through selling and weak demand, although expected gains in Chicago Board of Trade soybeans could lend some spillover support.

 

CBOT March wheat is called to open 2 to 4 cents per bushel lower. In overnight electronic trading, CBOT March wheat slipped 2 3/4 cents to US$5.67.

 

There was some follow-through selling overnight after CBOT March wheat almost ended down the daily limit of 60 cents on Monday, a trader said. The wheat limit is expanded to 90 cents at the CBOT on Tuesday but remains 60 cents at the Kansas City Board of Trade and Minneapolis Grain Exchange.

 

Limit-down losses in CBOT corn and soybeans helped pressure wheat on Monday. Strength in soybeans could help boost wheat Tuesday, a CBOT trader said.

 

"Monday's price action is suggestive of the start of the seasonal 'February Break' phenomenon in the grains," a technical analyst said. "A five-week-old uptrend on the daily bar chart was soundly negated Monday."

 

The next downside price objective for bears is pushing and closing CBOT March wheat below major psychological support at US$5.00, the technical analyst said. Bulls' next upside price objective is to push and close prices above solid technical resistance at last week's high of US$6.46 1/4, he said.

 

First resistance is seen at US$5.78 and then at US$6.00. First support lies at US$5.50 and then at US$5.25.

 

Wheat traders are waiting to see the results of a tender for wheat issued by Egypt's state-owned General Authority for Supply Commodities. The U.S. probably won't win any of the business because prices are too high, a trader said.

 

"With demand affected by the worldwide economic slowdown, buyers are expected to remain price sensitive," said Bryce Knorr, market analyst for Farm Futures. "An indication of just how sensitive will be seen today before the open, when results of Egypt's latest snap tender are reported. The large importer bought only a load of Russian wheat at its last tender, price some 15% below U.S. origins."

 

In other export news, Saudi Arabia bought 400,000 tonnes of Canadian wheat in a tender, European traders said. U.S. wheat was "not even in the ballpark" because prices are too high, a CBOT trader said.

 

Syria's state-owned General Authority for Cereal Processing and Trade, meanwhile, said it canceled a tender to buy 200,000 metric tonnes of optional origin soft wheat. Prices were "not suitable," an official said.

 

Japan said it's seeking 157,000 tonnes of wheat, including 90,000 tonnes from the U.S., in a tender to be concluded Thursday. The tender shouldn't impact the markets because it is routine business, traders said.

 

Looking at the weather, there are still concerns that cold weather could damage soft red winter wheat and hard red winter wheat this week, a CBOT floor trader said. In Midwest SRW wheat areas, the coldest weather of the winter season to date is expected during the next few days, with low temperatures dropping to 10-20 degrees below zero in the north and 0-10 degree below zero in the south, according to a forecast from private weather firm DTN Meteorlogix.

 

"Snow will provide some protection to winter wheat," Meteorlogix said. "However, snow cover may be limited in southern areas."

 

The HRW wheat belt in the Plains is expected to be on the western edge of the cold air affecting the Midwest, with any subzero cold likely confined to the northeast fringes, Meteorlogix said. Conditions will be mostly dry, and more precipitation is needed in southwest areas, the firm said.