February 25, 2010

 

US Wheat Outlook on Thursday: Seen down 4-6 cents in profit-taking pullback

 

 

Profit-taking and bearish fundamentals are expected to push down U.S. wheat futures at the start of Thursday's day session amid spillover pressure from other markets.

 

Chicago Board of Trade May wheat is called to open 4 to 6 cents per bushel lower. In overnight electronic trading, CBOT May wheat lost 5 1/2 cents, or 1.1%, to US$5.08 1/4.

 

The markets gave back some gains overnight after rising Wednesday. Wheat has traded back and forth this week, rising Monday and Wednesday and falling Tuesday, and lacks support from fundamental news or other markets Thursday, traders said. Neighboring CBOT corn and soybeans are called to open lower, and outside markets like crude oil and gold are also weaker.

 

Non-commercial speculative funds continue to hold a large net short position in CBOT wheat, which leaves the market vulnerable to sharp short-covering rallies. However, "wheat should open lower this morning, with profit taking giving back much of yesterday gains," Farm Futures said in a market comment.

 

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. 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 this week's high of US$5.17 3/4 and then at US$5.25. First support lies at Wednesday's low of US$5.03 and then at US$5.00, he said.

 

Large world supplies and stiff competition for export business continue to be bearish for the markets, an analyst said. Prices popped Wednesday, but "weak fundamentals eventually prevail," according to a note from Country Hedging.

 

Total weekly U.S. wheat export sales of 409,000 tonnes were within trade expectations of 300,000 to 550,000 tonnes. Net sales of 375,700 tonnes for delivery in 2009-10 were down 8% from the previous week and 26% from the prior four-week average, according to the U.S. Department of Agriculture.

 

The U.S. has faced competition for export business, particularly for sales to price-conscious buyers like Egypt, from Russia and other countries in the Black Sea region. U.S. wheat is seen as too expensive to be competitive on the world market.

 

Russia will likely be saddled with 20 million tonnes of wheat stocks at the start of the next crop year, the president of the Russian Grain Union said. The stocks are relatively high, even though they are below the year-ago level of 23 million tonnes, he said.