January 22, 2008

 

US Wheat Outlook on Tuesday: Seen lower amid global equity sell-off

 

 

A global sell-off in equities is expected to push U.S. wheat futures lower at the start of Tuesday's day session, although the grain markets' fundamental outlooks remain strong, traders said.

 

Benchmark Chicago Board of Trade March wheat is called to open 15 to 25 cents per bushel lower. In overnight trading, CBOT March wheat closed down 24 cents at US$9.38 1/2.

 

Asian bourses tumbled early Tuesday as concerns about the U.S. economy roiled global markets, with some indexes hitting multiyear lows amid signs that credit woes may spread as far as China. Spillover pressure from the liquidation should weigh on the U.S. grain markets, traders said.

 

However, news that the Federal Reserve cut its overnight lending rate by 75 basis points to 3.50% should help trim losses, an analyst said. There also continues to be solid demand for wheat in the world, which is supportive to prices, a CBOT floor broker said.

 

The U.S. wheat markets are "going to take an early beating" in activity dominated by money flows, the broker said. "We'll see who steps up to own it."

 

The Iraqi government has issued a tender to buy at least 50,000 metric tonnes of hard wheat. Companies must submit offers to the board by 1000 GMT Sunday, and the board usually buys much more than it tenders for.

 

State-run Trading Corporation of Pakistan finalized the purchase of 510,000 tonnes of milling wheat at US$467 a tonne, basis cost and freight, in a tender that closed last week, a government official said. The grain was from a range of origins including the U.S., Australia and Russia, the official said. The company also accepted a bid for 100,000 tonnes of white wheat, but the price has yet been finalized, he said.

 

Japan said it is seeking 215,000 tonnes of wheat, including 145,000 tonnes from the U.S., in a routine tender to be concluded Thursday. The shipment is expected to arrive March 6 to May 10.

 

"Wheat should find some buying interest from commercial traders after Pakistan purchased 610,000 metric tonnes of wheat off the world market and Iraq tendered for 50,000 metric tonnes of wheat," Brian Hoops, president of Midwest Market Solutions, said in a note to clients.

 

The CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange were closed Monday in observance of the Martin Luther King Jr. holiday. However, CBOT March wheat on Friday closed at a bullish weekly high close, a technical analyst said.

 

The bulls' next upside price objective is to push and close CBOT March wheat above strong technical resistance at Friday's high of US$9.66, the analyst said. The next downside price objective for the bears is pushing and closing prices below solid support at US$9.20.

 

First resistance is seen at US$9.50 and then at US$9.60. First support lies at the overnight low of US$9.32 1/2 and then at US$9.25.

 

At the KCBT, the bulls' next upside price objective is pushing and closing March wheat above solid resistance at Friday's high of US$10.11 1/2, the analyst said. The bears' next downside objective is pushing prices below major psychological support at US$10.00.

 

First resistance is seen at US$10.00 and then at US$10.11 1/2. First support is seen at US$9.75 and then at US$9.64.

 

In China, wheat prices were mostly unchanged in the week to Monday on stable government wheat auction prices. Wheat prices in Henan province, a major producing region, were at RMB1,540-RMB1,560 (US$212.78-US$215.54) a metric tonne, stable from a week ago.