February 8, 2010

 

US Wheat Outlook on Monday: Seen up 3-5 cents on short-covering, bounce

 

 

Short-covering and technical buying are expected to carry U.S. wheat futures higher early Monday as the markets recover from losses.

 

Chicago Board of Trade March wheat is called to open 3 to 5 cents per bushel higher. In overnight electronic trading, CBOT March wheat rose 4 3/4 cents to US$4.78.

 

Wheat is in an oversold condition and due for a rebound after heavy selling in recent weeks, traders said. A "short-covering bounce is underway" that may push CBOT March wheat to US$4.90 to US$5, according to a note from AgResource Company.

 

Non-commercial speculative funds increased their net short position in CBOT wheat futures and options to 66,355 contracts as of Feb. 2 from 60,883 contracts as of Jan. 26, the Commodity Futures Trading Commission said in a report Friday. The large net short position leaves the market vulnerable to bursts of short-covering, a trader said.

 

However, wheat's fundamental story remains unsupportive due to hefty supplies and stiff competition for export business, traders said. AgResource recommended new sales if CBOT March wheat tops US$4.90.

 

Iraq's state-run Grain Board bought 400,000 tonnes of Canadian wheat for delivery in April and May, the first Iraqi wheat purchase this year, according to the head of the board. The deals were the result of a tender for a nominal 100,000 metric tonnes of wheat that closed Jan. 26 with offers valid until Feb. 4.

 

Germany-based analytical firm F.O. Licht, meanwhile, raised its estimate for 2009-10 wheat production to 675.5 million metric tonnes from its January estimate of 674 million tonnes due to growth in Black Sea output. The increase reaffirms that world supplies are comfortable, traders said.

 

Traders are shifting their attention toward the 2010-11 wheat crop from the old crop as it is well known that supplies are ample, an analyst said. Conditions during the coming days will turn colder for U.S. winter wheat in the Midwest and Plains but not cold enough to cause damage, according to private weather firm DTN Meteorlogix.

 

"A bearish long term fundamental profile is advised," AgResource said.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the October low of US$4.59, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at last week's high of US$4.94 3/4, he said.

 

First resistance is seen at Friday's high of US$4.76 1/2 and then at US$4.82, the technical analyst said. First support lies at last week's low of US$4.66 1/2 and then at US$4.59, he said.