February 22, 2010

 

US Wheat Outlook on Monday: Up on spillover support, follow-through

 

 

Supportive signals from other markets are expected to bump U.S. wheat futures a few cents higher at the start of Monday's day session, although analysts say a lack of fresh news and bearishness about demand will limit gains.

 

Chicago Board of Trade wheat is called to open 2 to 3 cents per bushel higher. In overnight electronic trading, CBOT March wheat rose 2 3/4 cents to US$4.92 1/2, and CBOT May wheat edged up 2 3/4 cents to US$5.06 3/4.

 

Gains in neighboring CBOT corn and soybeans and weakness in the U.S. dollar should help lift wheat after all three markets advanced overnight, traders said. Soybeans led the upside, while wheat trailed along.

 

The markets are linked because funds often trade in a basket of commodities, and corn and wheat can both be used for animal feed. Weakness in the U.S. dollar adds to supportive psychology for commodities, traders said.

 

There was not much fresh fundamental news out during the weekend. It's well known that there is plenty of wheat in the world and competition for export business.

 

An official for the United Nations' Food and Agriculture Organization said global output may drop significantly in 2010 but that ample stocks from previous years should ensure adequate supply. According to FAO estimates, global wheat stocks are projected at 183.5 million metric tonnes by June 2010, up 28% from two years ago.

 

"As far as short term news, I don't see a lot that's going to push it one way or another," said Larry Glenn, broker and analyst at Frontier Ag. "I think we're going to be in a choppy sideways trading pattern for a while with the grain markets."

 

There continues to be the potential for support from short-covering and technical buying, traders said. Non-commercial speculative funds still hold a large net short position in CBOT wheat futures and options, although they trimmed it to 65,303 contracts as of Feb. 16 from a record of 74,767 contracts a week earlier, according to a supplemental Commodity Futures Trading Commission report.

 

The next downside price objective for the bears is pushing and closing CBOT May wheat below solid technical support at the February low of US$4.80 3/4, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at last week's high of US$5.23 1/4, he said.

 

First resistance is seen at US$5.12 and then at US$5.17 1/2, the technical analyst said. First support lies at US$5.00 and then at last week's low of US$4.92, he said.