January 26, 2010

 

US Wheat Outlook on Tuesday: Down on spillover pressure, China jitters

 

 

Pressure from other markets and worries about the stability of the global economy are expected to weigh on U.S. wheat futures early Tuesday.

 

Chicago Board of Trade March wheat is called to open 3 to 5 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 4 1/4 cents to US$4.94.

 

Commodity markets in general were down overnight amid concerns about a move by China to tighten liquidity and raise reserve requirements for banks. There are worries that China, a major consumer of commodities, will slow its demand, traders said.

 

"Commodity prices are under pressure and that pressure is likely to become quite severe, we fear, as the dollar strengthens and as the world's equity markets tumble," said Dennis Gartman, publisher of the Gartman Letter.

 

Weak U.S. wheat prices could attract improved export demand, which would be supportive to the markets after a sluggish sales season, a trader said. The U.S. Department of Agriculture on Friday said weekly export sales for the week ended Jan. 14 hit a marketing-year high after a slide in prices.

 

There is not too much surprising export news out Tuesday, a trader said. Japan said it is seeking 127,000 tonnes of wheat in a routine tender, while Jordan said it issued a tender to purchase 100,000 tonnes of wheat for delivery in April or May.

 

In other news, Argentina's wheat plantings could plunge by half from a historic low in 2009-10 due to government intervention in markets and export limits, according to the Rosario Grain Exchange. Argentine plantings won't be a factor for awhile, so U.S. wheat markets aren't worried about the forecast yet, a CBOT trader said.

 

The markets could find some support from short-covering or profit-taking by shorts after the recent losses, an analyst said. The markets are in a technically oversold condition and due for a bounce from the recent weakness, he said.

 

CBOT March wheat closed slightly lower Monday and has suffered near-term technical damage from recent weakness, a technical analyst said. A bearish "pennant pattern" has formed on the daily bar chart, he said.

 

The next downside price objective for bears is pushing and closing CBOT March wheat below solid technical support at the October low of US$4.59, the technical analyst said. The 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 Monday's high of US$5.04 and then at US$5.10, the analyst said. First support lies at US$4.91 1/2 and then at last week's low of US$4.85 1/4, he said.