January 21, 2010

 

US Wheat Outlook on Thursday: Seen starting mixed, attempting bounce

 

 

U.S. wheat futures are expected to start mixed Thursday, with some traders looking for the markets to attempt a bounce after recent sell-offs.

 

In overnight electronic trading, benchmark Chicago Board of Trade March wheat slipped 1/4 cent, or 0.05%, to US$4.97 1/4.

 

Wheat has had "a big break" since Jan. 12, when the U.S. Department of Agriculture raised its estimates for U.S wheat ending stocks and for U.S. corn production, a CBOT floor analyst said. Bearishness about large supplies and spillover selling from neighboring CBOT corn have dragged CBOT March wheat down 75 cents, or 13%, from its closing price Jan. 11.

 

The markets might see "a bit of a bounce" after the sell-off, the floor analyst said. CBOT March wheat Wednesday could not hold above US$5 but trimmed losses late amid short-covering, traders said.

 

"I wouldn't be surprised to see one more day of short covering," said Mark Gold, managing partner of Top Third Ag Marketing.

 

The next downside price objective for bears is pushing and closing prices below solid technical support at the October low of US$4.59, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.38, he said.

 

First resistance is seen at Wednesday's high of US$5.01 1/2 and then at US$5.10, the analyst said. First support lies at US$4.90 and then at Wednesday's low of US$4.85 1/4, he said.

 

The supply and demand storyline remains unsupportive for U.S. wheat because supplies are considered ample, traders said. Export demand for U.S. wheat has been sluggish due to competition for business from foreign countries.

 

"The pros will look to sell into short covering rallies, no matter what the cause," Gold said. "For the time being, world supplies of wheat remain burdensome for the market."

 

The U.S. scored some business from Iraq, which purchased 300,000 tonnes of wheat from the U.S., Russia and Australia for delivery in March and April, a senior official at the board said. The board also bought 200,000 metric tonnes of wheat from the U.S. and 100,000 metric tonnes of wheat from Russia for delivery in February and March this year.

 

Japan, meanwhile, said it bought 111,000 tonnes of wheat, including 86,000 tonnes from the U.S., in a routine tender issued Tuesday and concluded Thursday. The wheat is expected to arrive March 11 to April 10.

 

In other news, the International Grains Council estimated world wheat production will fall 3.1% on the year in the 2010-11 harvest period. The forecast 2010-11 world wheat output of 653 million tonnes is 21 million less than the previous harvest but would still be the third largest on record.