US Wheat Outlook on Thursday: Down on follow-through, awaiting Egypt

Follow-through selling and strength in the U.S. dollar are expected to weigh on U.S. wheat futures early Thursday as traders await the results of an Egyptian tender.

 

Chicago Board of Trade March wheat is called to open 2 to 3 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 2 3/4 cents to US$4.92.

 

Losses in the grains overnight were a "continuation of yesterday's lower prices," said Brian Hoops, president of Midwest Market Solutions. A "lack of fundamental news, combined with weak outside markets, has left the market weak," he said.

 

Strength in the U.S. dollar is often seen as a bearish influence because it makes U.S. grain less attractive to foreign buyers and reduced investors' appetite for risk. A firm dollar helped pressure prices Wednesday.

 

Traders are waiting to see the results of a tender for wheat from Egypt's state-owned General Authority for Supply Commodities, which said Wednesday it was tendering to buy up to 120,000 tonnes of wheat on a free-on-board basis. Egypt is a major buyer on the world wheat market and is known for being price sensitive.

 

Egypt will likely buy Russian, European or Kazakh wheat in the tender, according to a note from AgResource Company. U.S. wheat is seen as too expensive, the firm said.

 

It is difficult for CBOT wheat to sustain rallies because higher prices make U.S. wheat less competitive for export business, an analyst said. Still, the market could find support from short-covering because noncommercial speculative funds hold a massive short position in CBOT wheat, he said.

 

The supply-and-demand storyline U.S. wheat remains unsupportive because of stiff competitive for export business and large supplies, traders said. French analytical firm Strategie Grains raised its estimate for European Union 2010-11 soft wheat production to 134.7 million metric tonnes, up about 5 million tonnes on the year.

 

The U.S. Department of Agriculture's weekly export sales report will be issued Friday, one day later than normal due to the Presidents Day holiday. In other export news, Japan said it bought 100,000 tonnes of wheat, including 60,000 from the U.S., in a routine tender.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the February low of US$4.66 1/2, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the December low of US$5.14 1/4, he said.

 

First resistance is seen at Wednesday's high of US$5.04 3/4 and then at this week's high of US$5.09, the technical analyst said. First support lies at this week's low of US$4.88 1/4 and then at US$4.80, he said.