February 17, 2010

US Wheat Outlook on Wednesday: Seen down in setback from Tuesday's rally

U.S. wheat futures are expected to start weaker Wednesday in a setback from sharp gains Tuesday and amid a lack of fresh news or strong outside support.

Chicago Board of Trade March wheat is called to open 1 to 3 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 2 1/2 cents to US$5.02 1/2.

Wheat is "short-term overdone" to the upside after prices climbed more than 15 cents Tuesday on supportive signals from outside markets and technical buying, a trader said. Outside markets are more subdued Wednesday.

The dollar index was higher, which is often seen as unsupportive because it makes U.S. grain less attractive to foreign buyers. Neighboring CBOT corn and soybeans slipped overnight with wheat.

Tuesday's rally was not supported by fundamentals, as supplies are large and there continues to be competition for export business, traders said. The U.S. is "just pricing ourselves out a little more" of the export market when prices jump, a CBOT trader said.

Non-commercial speculative funds are heavily short in CBOT wheat, which leaves the door open for short-covering rallies. CBOT March wheat faces upside resistance around US$5.20 to US$5.21, the CBOT trader said.

"Bulls have gained some fresh upside technical momentum recently, and the end of a seasonal "February Break" phenomenon could be at hand, a technical analyst said. Follow-through buying interest Wednesday could help suggest a market low is in place, he 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, the technical analyst 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, he said.

First resistance is seen at Tuesday's high of US$5.09 and then at US$5.14 1/4, the technical analyst said. First support lies at US$5.00 and then at Tuesday's low of US$4.88 1/4, he said.

In other news, Turkey's state grain board said it will hold an international export tender Feb. 25 to sell as much as 150,000 tonnes of red milling wheat and up to 150,000 tonnes of durum wheat, according to the Ihlas News Agency. It will also sell up to 100,000 tonnes of white feed barley.

India, meanwhile, will likely see wheat production in 2009-10 exceed the previous year's record level of 80.68 million metric tonnes, the agriculture minister said. A government crop estimate released last week forecast output for the fiscal year ending March 31 at 80.28 million tonnes.