March 13, 2009

U.S. wheat futures are called up 1/2 to 1 cent higher Friday, in line with overnight electronic gains and stable outside markets.

 

In overnight electronic trading, Chicago Board of Trade May wheat added 1/4 cent to US$5.25 1/4 a bushel and July wheat gained 2 3/4 cents to US$5.40. Kansas City Board of Trade May wheat rose 1 cent to US$5.77. Minneapolis Grain Exchange May wheat ended up 2 1/4 cents at US$6.20.

 

March wheat contracts expire Friday.

 

Outside markets offer supportive signals with crude oil, gold and stock index futures are showing modest gains, while the U.S. dollar is nominally weaker.

 

"I expect wheat to be a little firmer in a low-volume day," a CBOT floor trader said. "Fridays are generally subdued in wheat futures."

 

Technically, bears maintain the near-term advantage, a market technician said, noting prices are still in a two-month-old downtrend on the daily bar chart.

 

Bears are aiming to close May futures prices below solid technical support at the March low of US$4.98 1/2, the technician said, pegging first support at US$5.20 and then at US$5.15.

 

The bulls are pressing to close May futures prices above solid technical resistance at US$5.44 3/4 a bushel, he said, placing first resistance at Thursday's high of US$5.26 1/2 and then at US$5.31.

 

Fundamentally, dry weather in the wheat-growing areas of the U.S. Southwestern Plains and China continues to be the primary concern in wheat markets.

 

A Chinese agricultural think tank on Friday estimated China's wheat output would shrink by 1.3% to 111 million tonnes in 2009.

 

Since the crops in China and the U.S. are just emerging from dormancy, "it's a little early to put a number on it," the CBOT trader said.

 

Light rain is forecast to hit the Southwestern Plains followed by a warmer, drier period of no moisture with no wetter pattern seen until the end of March and first part of April, said analyst Dave Lehl of Benson Quinn Commodities in a market commentary.

 

"Wheat may be vulnerable to short-covering rallies with supportive weather for the short term, but [Wednesday's] USDA report should continue to weigh on the market as large domestic and world carryout statistics should limit rallies and keep the longer-term down trend in place," Lehl said.

 

The U.S. Department of Agriculture increased U.S. wheat ending stocks for 2008-09 by 57 million bushels - a much greater addition than the 4 million analysts, on average, expected.

 

Wheat deliveries against the CBOT March contract totaled 834 lots. A customer account at Rosenthal was the primary issuer at 618 lots. A customer account at Banc of America securities stopped 354. The last trade assigned was March 12.

 

In global trading news, state-run graineries in Punjab, India's biggest grain-producing area, are overflowing with last year's record output, pressured by the federal government's ban on exports.

 

If the situation doesn't improve, grains will have to be kept under plastic sheets in the fields, leaving the newly cut crop exposed to rodent attacks and getting spoilt by dew or rains, local grain handlers said.

 

Meanwhile, demand for Australian wheat remains strong ahead of what industry participants see as a traditional period of market volatility as the northern hemisphere approaches spring.