February 16, 2010

 

US Wheat Outlook on Tuesday: Seen up on short-covering, follow-through

 

 

Short-covering and technical buying are expected to pull U.S. wheat futures higher early Tuesday amid supportive signals from outside markets.

 

Chicago Board of Trade March wheat is called to open 6 to 8 cents per bushel higher. In overnight electronic trading, CBOT March wheat climbed 8 1/4 cents to US$4.94 3/4.

 

Short-covering has the ability to boost prices because speculative funds are heavily short in CBOT wheat futures and options, traders said. They increased their net short position to 74,767 contracts as of Feb. 9 from 66,355 contracts the previous week.

 

Strength in neighboring CBOT soybeans and corn and in outside markets, such as crude oil and precious metals, contributes to a positive tone in wheat, traders said. The markets are linked because funds often trade in a basket of commodities. Corn and wheat also can both be used for animal feed.

 

Large U.S. supplies and lackluster export demand continue to hang over the markets, limiting upside potential, analysts said. The U.S. faces stiff competition for export business from other countries.

 

The Australian Bureau of Agricultural and Resource Economics, or Abare, on Tuesday trimmed its estimate for 2009-10 wheat production to 21.7 million tonnes from its December estimate of 22 million tonnes. The decline should not change the export program in Australia, which has historically been a top world exporter, according to AgResource.

 

Iraq's state-run Grain Board issued a tender to buy at least 100,000 tonnes of hard wheat from any origin, its second tender this year, the board said in an announcement posted on its Web site. Bidders should submit offers by Feb. 23 and bids will be valid until March 2, the board said. Iraq usually buys more wheat than it requests in tenders.

 

Japan, meanwhile, said it is seeking 100,000 tonnes of wheat, including 60,000 from the U.S., in a routine tender to be concluded Thursday. The wheat is expected to arrive in April.

 

Wheat jumped overnight after slumping Friday. CBOT March wheat faces technical resistance in the area from US$5 to US$5.10, according to a note from AgResource Company.

 

A technical analyst said the next downside price objective for bears is pushing and closing CBOT March wheat below solid technical support at the February low of US$4.66 1/2. He said bulls' next upside price objective is to push and close March futures prices above solid technical resistance at the December low of US$5.14 1/4.