January 22, 2009

Follow-through buying and renewed optimism about demand should lift U.S. wheat futures modestly higher at the start of Thursday's day session.

 

Chicago Board of Trade March wheat is called to open 2 to 4 cents per bushel higher. In overnight electronic trading, CBOT March wheat rose 3 1/4 cents to US$5.75.

 

The markets should feel some technical support after CBOT March wheat closed above key resistance levels Wednesday around US$5.57 to US$5.60, a trader said. Still, the market traded an inside day Wednesday and may struggle to maintain its strength, he said.

 

Traders see the potential for improved demand for U.S. wheat after Egypt's state-owned wheat buyer, the General Authority for Supply Commodities, bought 178,000 tonnes of wheat in a tender Wednesday. Of the total, 60,000 tonnes were U.S. SRW wheat.

 

A breakdown of bids for the tender showed U.S. wheat had become more competitive on the world market, traders said. U.S. wheat had previously been considered too expensive to compete with other exporters, such as the Black Sea region.

 

A recent dip in the price of U.S. wheat "has started to enable the U.S. to gain a share of the steady flow of business currently on the tender calendar," Fortis said in a note. "U.S. wheat is much more competitive on export markets this week."

 

Japan bought 157,000 tonnes of wheat, including 90,000 tonnes of U.S. wheat, in a routine tender concluded Thursday. The shipment is expected to arrive March 11 to April 10.

 

In other news, Argentina cut its wheat production estimate to 8.3 million metric tonnes from 9 million tonnes as a lingering drought hurt yields. Fortis said the reduction was unsurprising, although some traders said it could be friendly because it takes exportable wheat off the world market.

 

"They keep ratcheting [the Argentine estimate] down - it seems like every month," a CBOT trader said.

 

CBOT March wheat could come under pressure Thursday or Friday barring a close above US$5.90, Fortis said. Trading could be two-sided, traders said.

 

The next downside price objective for the bears is pushing and closing prices below solid technical support at US$5.25, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$6.00, he said.

 

First resistance is seen at Wednesday's high of US$5.73 and then at this week's high of US$5.88 3/4. First support lies at US$5.60 and then at this week's low of US$5.48 1/4.