February 3, 2009

Follow-through selling and pressure from other markets are expected to tug U.S. wheat futures lower at the start of Tuesday's day session, although analysts said the downside looks limited.

 

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 3 3/4 cents to US$5.60.

 

Wheat could feel pressure from selling in CBOT soybeans and corn, which slipped overnight on reports of wet weather in dry areas of Argentina, traders said. Concerns that grain demand will suffer from the weak economy are also bearish, they said.

 

"Trade is sideways/lower while South American weather develops," Country Hedging said in a market comment.

 

Monday's low should provide support for CBOT March wheat in the near term, analysts said. The contract on Monday hit a low of US$5.51 3/4 in electronic trading, which could serve as a "major low for the next 30 to 45 days," said Mike Zuzolo, analyst for Risk Management Commodities.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at US$5.15, a market technician said. The bulls' next upside price objective is to push and close the contract above major psychological resistance at US$6.00, he said.

 

First resistance is seen at Monday's high of US$5.71 and then at US$5.80, the technician said. First support lies at Monday's low of US$5.51 3/4 and then at the January low of US$5.48 1/4, he said.

 

"With the wheat acreage so low in the U.S., and weather problems present in both here and in China's wheat belt, we expect that the wheat will be the first of the grains to find a bottom," Zuzolo said in a note.

 

Farmers planted less U.S. wheat in the U.S. for the 2009 crop than they did the previous year following a drop in prices. There are concerns about dryness in growing areas of the U.S. Plains and China.

 

Forecasts show moisture may hit the Plains from Sunday to Monday, although it's not certain that significant precipitation will reach western areas, private weather firm DTN Meteorlogix said. Worries about dryness should provide some underlying support, particularly to Kansas City Board of Trade wheat, a trader said.

 

In export news, Iraq issued a new tender to buy at least 50,000 tonnes of hard wheat, the Grain Board of Iraq said in a tender document. Companies must submit offers to the board by 0900 GMT on Feb. 8, and offers will be valid until Feb. 12, it said. It's expected that Iraq will secure "much larger tonnages," including some U.S. wheat, AgResource Co. said in a market comment.

 

"U.S. FOB wheat prices are below those of other origins - including the Black Sea," AgResource said. "This more competitive market stance should allow U.S. wheat export demand to improve. ARC calculates that US SRW wheat is now priced at a US$11-12/MT discount to current Black Sea offers - the weakest that we can find in years. With Iraq, Egypt and Iran still having forward needs to cover, this break in wheat should uncover willing buyers for U.S. and world wheat."