March 12, 2010

 

US Wheat Outlook on Friday: Expected to bounce on short-covering

 

 

Short-covering and the perception in the market that recent sell-offs were short-term overdone are expected to support U.S. wheat futures at the start of Friday's day session.

 

Chicago Board of Trade May wheat is called to open 3 cents to 5 cents per bushel higher. In overnight electronic trading, CBOT May wheat jumped 5 1/4 cents, or 1.1%, at US$4.84.

 

Wheat is due for a bounce after prices hit a five-month low Thursday at the CBOT and set contract lows at the Kansas City Board of Trade and Minneapolis Grain Exchange, traders said. CBOT wheat is vulnerable to short-covering rallies because non-commercial speculative funds hold a net short position of about 72,000 contracts, a CBOT floor trader said.

 

"It seems like selling exhaustion has been met," he said.

 

Strength in crude oil should help lift the grains, traders said, and activity in neighboring CBOT corn and soybeans also should influence wheat, which is seen as a follower. Corn and soybeans were firmer overnight and are expected to start stronger.

 

It will be difficult for wheat to sustain gains because it has bearish fundamentals, traders said. U.S. and world supplies are large, and there is tough competition for export business on the world market. Rallies are largely seen as selling opportunities due to the unsupportive storyline.

 

Technical charts look "like garbage" after recent sell-offs, a trader said. CBOT May wheat as of Thursday's close was down 40 1/2 cents, or 7.8%, since the beginning of the month.

 

"A four-month downtrend line is in place on the daily chart, drawn from the November, December and January highs," a technical analyst said. "The bears have the solid overall near-term technical advantage."

 

The next downside price objective for bears is pushing and closing CBOT May wheat below solid technical support at the contract low of US$4.72, the analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.10, he said.

 

First resistance is seen at Thursday's high of US$4.83 1/4 and then at US$4.92. First support lies at Thursday's low of US$4.75 1/2 and then at US$4.72, the technical analyst said.