March 1, 2010

 

US Wheat Outlook on Monday: Seen starting down, taking overnight cue

 

 

U.S. wheat futures are expected to start slightly lower Monday amid pressure from the rising U.S. dollar, but the markets could trade both sides.

 

Chicago Board of Trade May wheat is called to open 2 cents to 3 cents per bushel lower. In overnight electronic trading, CBOT May wheat fell 2 1/2 cents, or 0.5%, to US$5.16 3/4.

 

Strength in the dollar pulled wheat down overnight after early gains in the overnight session, said Larry Glenn, broker and analyst at Frontier Ag. A firm dollar often has a psychologically bearish impact because it can make U.S. grain less attractive to foreign buyers.

 

Supportive fundamental news remains scarce for wheat. Iraq's state-run Grain Board bought 380,000 tonnes of wheat from Russia, Canada and Australia for delivery in July and August but none from the U.S.

 

However, wheat could trade both sides depending on activity in neighboring CBOT corn and on whether funds come in to buy the grains, a trader said. Wheat has been in a follower's role lately and is linked to corn because both grains are used for animal feed. Corn rose 0.3% overnight.

 

There are some expectations for fund buying at the start of the new month, although fund money flows into commodities have been "limited" so far, according to a note from AgResource Co. Fund buying could still develop but may be "smaller than the bulls had hoped for," the firm said.

 

Non-commercial speculative funds trimmed their net short position in CBOT wheat futures and options but remain heavily short, leaving the market vulnerable to short-covering rallies. They were net short 63,168 contracts as of Feb. 23, down from 65,303 contracts as of Feb. 16, according to Commodity Futures Trading Commission supplemental reports.

 

Wheat closed Friday near session highs and at bullish weekly high closes, a technical analyst said. A "larger-degree downtrend line is still in place on the daily chart, drawn from the November, December and January highs. The bulls have gained some fresh upside near-term momentum recently," he said.

 

"The chart picture doesn't look that bad," Glenn said. "We're still in a sideways trading pattern. We're just in the highest end of the range."

 

The next downside price objective for bears is pushing and closing CBOT May wheat below solid technical support at US$4.92, the technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the February high of US$5.23 1/4, he said.

 

First resistance is seen at Friday's high of US$5.20 1/4 and then at US$5.23 1/4, the analyst said. First support lies at US$5.10 and then at Friday's low of US$5.03, he said.