March 3, 2010

 

US Wheat Outlook on Wednesday: Seen starting up, could trade both sides

 

 

U.S. wheat futures are poised to start a few cents higher Wednesday after rising overnight, but could trade both sides in choppy activity.

 

Chicago Board of Trade May wheat is called to open 1 cent to 2 cents per bushel firmer. In low-volume, overnight electronic trading, CBOT May wheat rose 1 1/2 cents, or 0.3%, to US$5.06.

 

The markets are expected to chop around amid a lack of fresh news, a CBOT floor trader said. Gains in neighboring markets look slightly supportive, but they are not offering strong leadership, he said.

 

Neighboring CBOT May corn, which is linked to wheat because both grains are used for animal feed, edged up 1 3/4 cents, or 0.5%, in overnight trading. May soybeans overnight gained 5 1/4 cents, or 0.5%.

 

Wheat has been looking to neighboring markets and to the U.S. dollar for direction lately because its supply and demand situation is well known. The dollar was weakening, which can offer psychological support due to the perception that it increases investors' appetite for risk and makes U.S. grain more attractive to foreign buyers.

 

Export demand for U.S. wheat has been lagging, despite dips in the dollar, and sluggish sales are unsupportive to prices, a trader said. There is stiff competition for export business on the world market because world supplies are plentiful.

 

In other news, U.S. hard red winter wheat, grown in the central and southern Plains, is in "very good shape," said Dennis Gartman, publisher of the Gartman Letter. The crop has "more than adequate snow cover for moisture and protection" from cold weather, he said.

 

U.S. soft red winter wheat, grown in the Midwest and south, "is not quite so solid, but it is a bit too early to be too concerned," Gartman said. SRW wheat is traded at the CBOT, and HRW wheat is traded at the Kansas City Board of Trade.

 

Looking at technical charts, the trend in wheat looks sideways, a broker said. CBOT May wheat is hovering near psychological support at US$5, he said.

 

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 this week's high of US$5.26, he said.

 

First resistance is seen at Tuesday's high of US$5.09 3/4 and then at US$5.15. First support lies at this week's low of US$4.96 1/4 and then at US$4.92, he said.