February 19, 2010

 

US Wheat Outlook on Friday: Seen down 2-4 cents on firm dollar, big supply

 

 

U.S. wheat futures are poised to open lower Friday on follow-through selling, pressure from the firm U.S. dollar and continued bearishness about large supplies.

 

Chicago Board of Trade March wheat is called to start 2 to 4 cents per bushel weaker. In overnight electronic trading, CBOT March wheat fell 3 cents to US$4.82.

 

The dollar jumped after the Federal Reserve unexpectedly increased the rate it charges banks for temporary loans by a quarter percentage point to 0.75%. A strong dollar is often seen as unsupportive for U.S. grains because it makes them less attractive to foreign buyers and reduces investors' appetite for risk.

 

The U.S. has struggled to make major export sales lately amid stiff competition from other countries. Egypt on Thursday bought 300,000 tonnes of French and Russian wheat and none from the U.S., which is too expensive to be competitive for price-sensitive buyers.

 

"The increased discount rate only serves to make U.S. wheat even more expensive," said Dennis Gartman, publisher of the Gartman Letter. "To that end, wheat seems expensive on the CBOT relative to the other grains."

 

In other news, total weekly U.S. wheat export sales of 463,400 tonnes were within trade expectations of 300,000 to 550,000 tonnes. Net sales of 408,900 tonnes for delivery in 2009-10 were down 25% from the previous week and 33% from the prior four-week average, according to the U.S. Department of Agriculture.

 

The USDA, at its annual Agricultural Outlook Forum, estimated 2010-11 U.S. wheat production at 1.945 billion bushels, with planted area estimated at 53.8 million acres. In 2009-10, planted area was 59.1 million acres and production was 2.216 billion bushels.

 

The estimates for 2010-11 are "something to talk about" but production and yield could change dramatically from USDA's initial estimates because of weather, a CBOT floor trader said. He said they would not have a big impact on trading.

 

The market has the potential to find support from short-covering, as non-commercial speculative funds are short about 70,000 contracts in CBOT wheat, a trader said. However, large supplies and concerns about demand continue hang over the market, an analyst said.

 

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. The 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 US$4.95 and then at US$5.00, the technical analyst said. First support lies at Thursday's low of US$4.83 and then at US$4.75, he said.