January 23, 2008

 

US Wheat Outlook on Wednesday: Slippery trade seen as markets eye equities

 

 

U.S. wheat futures are expected to start Wednesday's day session mixed as traders realign spreads while keeping an eye on activity in outside equity markets, analysts said.

 

Prices of old-crop and new-crop Chicago Board of Trade wheat diverged overnight, with the nearby March contract rising 3 cents to US$9.37 per bushel while the July contract fell 17 3/4 cents to US$8.73.

 

CBOT July wheat closed out of line Tuesday and saw a downward correction overnight, traders said. The new-crop contract is called to open 15 to 17 cents lower.

 

Old-crop contracts, meanwhile, may see some modest follow-through buying from the overnight, an analyst said. However, weakness in equities could put pressure on nearby and deferred months, a CBOT floor broker said.

 

The direction of the markets will be determined by money flows, the broker said. "It's going to be a slippery trade," he said.

 

Minneapolis Grain Exchange wheat futures should start stronger after continuing to rally overnight, traders said. MGE March wheat set a new all-time high of US$12.45.

 

There is good cash demand for high-quality spring wheat, traded at the MGE, a trader said. Strength in MGE may bleed over into the CBOT and KCBT markets, he said.

 

CBOT wheat bulls have the near-term technical advantage and their next upside price objective is to close the March contract above strong technical resistance at Tuesday's high of US$9.86, a technical analyst said. The next downside price objective for the bears is pushing and closing prices below solid support at US$9.00, he said.

 

First resistance is seen at US$9.50 and then at US$9.66 1/2. First support lies at Tuesday's low of US$9.33 and then at US$9.25.

 

At the Kansas City Board of Trade, the bulls' next upside price objective is pushing and closing March wheat above major psychological resistance at US$10.00, the analyst said. The bears' next downside objective is pushing prices below solid support at US$9.64, which would fill on the downside an upside price gap on the daily bar chart, he said.

 

First resistance is seen at US$10.00 and then at US$10.19. First support is seen at Tuesday's low of US$9.84 and then at US$9.64.

 

There is not too much fresh fundamental news out for the markets to feed on, traders said.

 

Pakistan bought an additional 60,000 tonnes of red milling wheat, according to a media report. If confirmed, the purchase would be bullish because it is taking wheat off the world market while supplies are tight, an analyst said.

 

Pakistan also banned wheat flour exports to Afghanistan through the private sector to help maintain stable domestic wheat and wheat flour prices. According to official estimates, Pakistan exports 2 million metric tonnes of wheat flour each year to Afghanistan.

 

Ukraine's wheat harvest in 2008 is likely to increase by some 30%, compared with 2007, the AAA market analyst said in a report. Encouraged by soaring world prices, Ukrainian farmers planted winter wheat for the 2008 harvest on 6.66 million hectares, which is 40% more than a year ago.