January 13, 2010

 

US Wheat Outlook on Wednesday: Seen down on spillover, follow-through

 

 

U.S. wheat futures are poised to start lower Wednesday on follow-through selling and spillover pressure from weak corn, with traders watching for the results of an Egyptian tender and for potential index fund buying.

 

Chicago Board of Trade March wheat is called to open 3 to 5 cents per bushel lower. In overnight electronic trading, CBOT March wheat sank 5 3/4 cents to US$5.30.

 

Follow-through selling should weigh on the markets after wheat closed sharply lower Tuesday amid spillover pressure from CBOT corn, which fell its daily 30-cent limit, traders said. March corn overnight dropped 17 1/4 cents.

 

Corn fell amid bearishness about a massive crop estimate issued Tuesday by the U.S. Department of Agriculture. The USDA raised its forecasts for 2009-10 U.S. and world wheat ending stocks, which is seen as bearish, but estimated that U.S. farmers planted much less winter wheat than expected, which is seen as supportive.

 

CBOT wheat touched a three-week low Tuesday and suffered "serious near-term technical damage" from the fall, a technical analyst said. The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the December low of US$5.14 1/4, he said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at this week's high of US$5.75, he said.

 

First resistance is seen at US$5.45 1/4 and then at US$5.50, the technical analyst said. First support lies at US$5.30 and then at US$5.25, he said.

 

Traders will keep an eye open for the results of an Egyptian tender for wheat. Egypt, a major buyer on the world market, has not booked wheat from the U.S. lately amid stiff competition from other countries.

 

Egypt is considered a price-conscious buyer and has been booking wheat from Russia and Europe. U.S. wheat is considered too expensive to be competitive on the world market.

 

Traders will also look to see whether index fund buying returns Wednesday, a CBOT floor analyst said. The funds are expected to buy the grains as part of a seasonal rebalancing process, but rebalancing did not take place as expected Tuesday because corn sank the daily limit, he said.

 

"Index fund reallocation could help give the market a bounce," Benson Quinn Commodities said in a note.

 

In other news, Turkey's state grain board said it will hold an international export tender Jan. 21 to sell wheat and barley, according to a news agency. India's cabinet, meanwhile, approved the sale of 500,000 tonnes of wheat and 200,000 tonnes of rice from federal stock piles through state-run agencies to ease pressure on local prices, the federal agriculture minister said.