February 6, 2009

U.S. wheat futures are expected to start higher Friday as the markets extend a technical bounce amid spillover support from soybeans and crop concerns.

 

Chicago Board of Trade March wheat is called to open 5 to 7 cents per bushel higher. In overnight electronic trading, CBOT March wheat closed up 6 1/4 cents at US$5.68.

 

Gains are expected after the markets got the ball rolling on a recovery Thursday, a CBOT floor trader said. Firm soybeans and corn should continue to offer wheat support amid concerns about hot, dry weather in Argentina, traders said.

 

Weakness in crude oil could temper strength in the grains, a trader said. Crude oil is linked to the grains because funds often trade in a basket of commodities and because ethanol is made from corn.

 

Traders continue to worry about potential production losses from dryness in China's wheat areas. Still, about 50% of the wheat grown in areas affected by a severe drought in China, or 5.25 million hectares, has been irrigated, according to the Ministry of Agriculture.

 

"An utter lack of moisture in northern China for four months is a concern," said Dennis Gartman, publisher of the Gartman Letter. "It may be alleviated at a virtual moment's notice, but for now it shall serve to hold wheat prices higher."

 

The U.S. Plains are expected to get "a good drink of water," which would be welcomed by farmers after a dry winter, a trader said. "Significant rainfall" is forecast for dry areas of the southwest Plains starting Sunday, and there may be more chances for precipitation next week, private weather firm DTN Meteorlogix said.

 

Some crop areas of India are facing weather that is hotter and drier than desired. Wheat output could fall below last year's level of 78.4 million metric tonnes unless a spell of rain cools temperatures in February, a month before the harvest, a top government scientist said Friday.

 

CBOT March wheat overnight hit a session high of US$5.70 1/2, near the week's high of US$5.71 and above the 50-day moving average around US$5.63. Index funds are expected to roll positions to the May futures contract from the nearby March contract, a CBOT floor trader said.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at this week's low of US$5.38 3/4, a technical analyst said. 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 Thursday's high of US$5.67 1/2 and then at this week's high of US$5.71. First support lies at US$5.50 and then at Thursday's low of US$5.41 1/2.