March 5, 2009

U.S. wheat futures are poised to start lower Thursday as the markets give back Wednesday's gains amid pressure from outside markets.

 

Chicago Board of Trade May wheat is called to open 5 to 7 cents per bushel lower. In overnight electronic trading, CBOT May wheat sank 5 cents to US$5.18.

 

Losses in crude oil and expectations for a lower start in stocks should weigh on the grains, a CBOT floor broker said. Strength in the U.S. dollar adds pressure as it makes U.S. wheat less competitive on the global export market, he said.

 

Grains have been looking to outside markets for direction lately amid worries about the sagging economy. Supportive outside markets helped wheat climb Wednesday.

 

"It's going to be a macro negative out of the gate here," a trader said. "The market's just giving a little back."

 

Total weekly U.S. wheat export sales of 307,700 tonnes were at the low end of trade expectations, which ranged from 300,000 to 500,000 tonnes. Sales for delivery in the 2008-09 marketing year were 285,200 tonnes, down 39% from the previous week and 30% from the prior four-week average, according to the U.S. Department of Agriculture.

 

Top buyers for delivery in 2008-09 included South Korea, which booked 69,000 tonnes, and Mexico, which booked 46,700 tonnes, the USDA said. China bought China 14,000 tonnes of U.S. soft red winter wheat, although traders have said they do not expect sales to China to become a major trend.

 

Traders had been watching China's crop due to reports of drought in growing areas. However, recent rains have improved the situation, according to the government.

 

Output from Henan, China's biggest wheat producing province, may be around the same level as last year, the province's governor said. Still, it is difficult to trust word coming out of China, a CBOT trader said.

 

In other news, Syria said it was tendering to buy 200,000 metric tonnes of soft wheat of any origin on a cost and freight basis. Japan said it bought 118,000 tonnes of wheat, including 55,000 tonnes from the U.S., in a routine tender.

 

Wednesday's gains present "a selling opportunity in a bear market that should be thinking about retesting US$4.71" in CBOT May wheat, FuturesTechs said in a note. However, others see a supportive fundamental storyline developing for wheat, including concerns about dryness in the U.S. Plains.

 

Rain is needed to help replenish soil moisture for spring growth, especially in parts of southwest and central Kansas, Oklahoma and Texas, private weather firm DTN Meteorlogix said. The outlook doesn't include much chance for significant rainfall in the areas during the next week to 10 days, it said.

 

The next downside price objective for 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 Wednesday's high of US$5.25 and then at US$5.35. First support lies at US$5.15 and then at Wednesday's low of US$5.01 1/2.