February 11, 2009

U.S. wheat futures are expected to start down Wednesday, continuing the Tuesday slide that extended through the overnight trend.

 

Analysts and traders see wheat as a follower of soybeans without strong fundamental motivation to fluctuate much either way. Chicago Board of Trade March wheat is called to open 5 to 7 cents per bushel lower. In overnight electronic trading, CBOT March wheat dropped 6 3/4 cents to US$5.49 1/4. Nearby wheat contracts also dropped at the Kansas City Board of Trade and the Minneapolis Grain Exchange.

 

The speculative funds are heavily short and index funds are rolling their positions, a CBOT trader said, noting the March-May spread trades are a dominant activity.

 

"Dry weather in China is on the back burner as a news item, with emerging drought in southern Australia also failing to stir bullish emotions," said Farm Futures Senior Editor Bryce Knorr in his Wednesday outlook.

 

Milling wheat futures were down about 1% in early European trading Wednesday, "with a weaker dollar and stronger euro depressing the market there," Knorr said.

 

The hard red winter wheat growing areas of the Southern Plains received no more than a three-quarters of an inch of rain overnight and are facing mostly dry weather through Saturday, according to DTN Meteorlogix.

 

More rain is needed in the western areas of the region, the private weather forecast said.

 

Bearish outside markets faced the grains Tuesday with lower crude oil prices, a stronger U.S. dollar and sharply lower U.S. stock indexes. These forces are muted Wednesday morning.

 

"Wheat bears still have the overall near-term technical advantage," a market technician said. "Prices are still in a four-week-old downtrend on the daily bar chart."

 

Bears are aiming to close below solid technical support at last week's low of US$5.38 3/4, he said, pegging first support at US$5.50 and then at Tuesday's low of US$5.43 1/2.

 

The bulls press to close March futures prices above major psychological resistance at US$6.00 a bushel, he said, placing first resistance at Tuesday's high of US$5.66 and then at this week's high of US$5.77.

 

China's wheat area under drought was reduced by another 890,000 hectares from Monday as of Wednesday due to irrigation, although there was no rainfall in the affected areas Tuesday, said the Office of State Flood Control and Drought Relief Headquarters.

 

Wheat areas hit by drought were reduced to 7.87 million hectares, down 2.39 million hectares from the peak level on Feb. 7, said the office in a statement published on its Web site.