February 26, 2010

 

US Wheat Outlook on Friday: Seen bouncing, following CBOT corn

 

 

U.S. wheat futures are expected to start firmer Friday in a modest bounce from losses, keeping an eye on activity in neighboring Chicago Board of Trade corn futures.

 

CBOT May wheat is called to start 1 to 3 cents a bushel higher. In overnight electronic trading, CBOT May wheat was up 1 1/2 cents, or 0.3%, at US$5.05 1/4.

 

Wheat is recovering a bit after tumbling Thursday, traders said. Short covering is the market's "best up stimulus" because there is a lack of supportive fundamental news, according to a note from Country Hedging.

 

Noncommercial speculative funds hold a massive short position in CBOT wheat, which leaves the market vulnerable to sharp short-covering rallies. The heavy net short position in CBOT wheat makes "that market one to watch," Country Hedging said.

 

Bears may be reluctant to press the short side too hard because of the potential for bursts of short covering, an analyst said. Traders noted there are some expectations that funds will buy next week at the start of the month.

 

"The potential of some sort of rally to start the week and month has the bears cautious with new short positions," AgResource Co. said. "They look to sell it Tuesday."

 

Wheat should be a follower of corn and feel borrowed strength from the neighboring market, "as long as corn holds up," because the grains are linked through spread relationships, a trader said. Corn and wheat can both be used for animal feed. May corn overnight was up 3 cents, or 0.8%.

 

Gains in wheat on Friday would extend the markets' choppy seesaw trading pattern. Prices rose Monday and Wednesday and fell Tuesday and Thursday. The "yo-yo trade" has been "chopping up" short-term traders, a broker said.

 

The next downside price objective for the wheat futures 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 US$5 and then at last week's low of US$4.92, the analyst said.