February 17, 2009

U.S. wheat futures, facing a generally negative economy and a stronger dollar, are expected to stumble on the open of Tuesday's trading session.

 

Chicago Board of Trade March wheat is called to open down 5-7 cents. In overnight electronic trading, CBOT March wheat lost 6 1/2 cents to US$5.29. May wheat dropped 6 3/4 cents to US$5.41 1/2. May wheat contracts fell 5 3/4 cents to US$5.78 at the Kansas City Board of Trade. At the Minneapolis Grain Exchange, May wheat ended flat, at US$6.24 3/4.

 

"Crude oil's getting hit, negative outside markets, besides that, it's the same old business story for wheat - we'll be a follower," a CBOT floor trader said.

 

The market continues to watch drought issues in China and the Southern Plains hard red wheat growing areas, with some rains coming to the drought-oppressed wheat-growing areas of China while showers missed the dry western HRW areas of the southern Plains.

 

China's winter wheat crop is also being hit by disease, insects and cold, the Ministry Of Agriculture said Tuesday. A severe outbreak of wheat stripe rust affected 95,330 hectares of wheat in southwest Sichuan province as of Feb. 10, more than four times the year-ago level, the ministry said in a statement published on its Web site. About 21% of wheat area in neighboring Guizhou province was hit by the fungus, it said.

 

Following corn and soybeans, "wheat also should see selling this morning, after futures moved to new lows overnight," said Farm Futures Senior Editor Bryce Knorr in his Tuesday morning outlook.

 

"Chart patterns are looking more negative for wheat as the crop begins to break dormancy, with support coming mostly from weather concerns as export news moves to the back seat for the growing season," he said.

 

Speculative funds added to both long and short CBOT wheat positions, but finished the week ended Feb. 10 net short 30,250 contracts, according to a supplemental commitment of traders report released by the Commodity Futures Trading Commission.

 

Commercials reduced both long and short positions to finish the week net short 85,014 contracts. Index funds' net long position totaled 160,069 contracts.

 

After closing at a fresh two-month low, wheat is subject to the bears' "overall near-term technical advantage" with prices in a six-week-old downtrend on the daily bar chart, a market technician said.

 

Bears are aiming to close March futures prices below solid technical support at US$5, he said, pegging first support at Thursday's low of US$5.25 and then US$5.20.

 

The bulls are pressing to close March futures prices above solid technical resistance at the February high of US$5.77 a bushel, he said, placing first resistance at US$5.38 3/4 and then at US$5.50.

 

In global trade news, wheat exports from Australia doubled in December from month-earlier levels, totaling 1.16 million metric tonnes from 498,000 tonnes in November, the government's chief commodities forecaster, the Australian Bureau of Agricultural and Resource Economics, or Abare, reported Tuesday.

 

The annual harvest usually starts in October in northern growing areas and finishes in the south in December, though the end of the last harvest was delayed about a month.

 

West Australian port congestion due to logistical constraints and strong demand for wheat exports is "not causing significant issues," a Sydney-based analyst said.

 

Brazil will need to import a substantial amount of wheat from outside of Mercosul - possibly as much as 2.0 million-2.5 million tonnes this year. The U.S., Canada and Russia have the potential to fill this demand, according to a U.S. Department of Agriculture attache report posted Friday on the Foreign Agricultural Services Web site.

 

Brazilian millers have requested that the Government of Brazil temporarily eliminate the 10% import tariff and create a quota for non-Mercosul wheat to ensure supply and control prices. Argentina's wheat crop production is estimated to drop almost in half this year, to 8.4 million tonnes from last year's 16 million tonnes. In reaction, Argentina - which normally provides more than 90% of Brazilian wheat imports - has suspended export licenses which will affect Brazilian supply.

 

Japan issued its weekly wheat tender and Syria reissued a tender after scrapping several previous purchase attempts.