March 3, 2009

U.S. wheat futures are expected to start mixed Tuesday as the markets try to rebound from a sell-off Monday.

 

In overnight electronic trading, Chicago Board of Trade May wheat slipped 1 cent to US$5.05 per bushel.

 

Outside markets continue to be a focus for the grains, as traders watch activity in equities, crude oil and the U.S. dollar for direction, an analyst said. Crude oil was stronger ahead of the start of the grains session, and the dollar was lower - factors that are seen as supportive to the grain.

 

A lower dollar helps set a bullish tone because it makes U.S. grain more attractive to foreign buyers. Crude oil is linked to the grains because funds often trade in a basket of commodities and because ethanol is made from corn.

 

Wheat is due for a bounce as recent losses were "short-term overdone," a CBOT floor trader said. It should find some support from "the outside markets stabilizing," he said.

 

Traders continue to monitor dryness in the U.S. Plains as the hard red winter wheat crop is starting to come out of dormancy, although fundamentals are taking a backseat to the outside markets, an analyst said. Talk about a lack of rain in China has faded, he said. China's Ministry of Agriculture removed a state of emergency it had declared over drought-hit wheat growing areas in the country's north following the recent rains.

 

"At the moment, the wheat market cares not a whit about the condition of the winter wheat crops in China and the U.S.," said Dennis Gartman, publisher of the Gartman Letter. "It cares only about the direction of the stock markets and the global economic system."

 

In other news, Australia's agriculture minister said the grain export infrastructure needs improvement but that congestion at ports and delays in exports reflect short-term problems that couldn't be avoided. Wheat exporters will still be able to meet international obligations and remain a reliable long-term supplier, he said.

 

The chairman of Indonesia's Wheat Flour Association said shipment delays at Australian ports have left most Indonesian wheat importers scrambling to source the grain from other suppliers, such as the U.S, Canada and Russia. Other countries, such as South Korea, have reported similar problems.

 

"It is bullish? No," a CBOT trader said about the reports. "It just shows business is being done."

 

The Japanese government is unlikely to reduce its Australian wheat imports, a wheat trader in Tokyo said. Japan said it is seeking 118,000 tonnes of wheat, including 55,000 tonnes of U.S. wheat, in a routine tender to be concluded Thursday for delivery in May.

 

Looking at technical charts, the next downside price objective for the bears is pushing and closing CBOT May wheat below solid technical support at US$4.84 1/4, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.44 3/4, he said.

 

First resistance is seen at US$5.15 1/2 and then at US$5.25. First support lies at US$5.00 and then at US$4.90.