March 16, 2010

US Wheat Outlook on Tuesday: Seen up early, could trade both sides

U.S. wheat futures are expected to start slightly higher Tuesday after bouncing overnight, but bearishness about large supplies and an absence of fresh news could encourage choppy, two-sided trading.

Chicago Board of Trade May wheat is called to open 1 to 3 cents per bushel higher. In overnight electronic trading, CBOT May wheat rose 1 1/2 cents, or 0.3%, to US$4.80 3/4.

Follow-through buying from the overnight session and supportive outside influences should help underpin the markets early in the day session, traders said. The U.S. dollar is weaker, which is often seen as supportive for the grains because of the perception that it makes them more attractive to foreign buyers and increases investors' appetite for risk.

Technical buying and short-covering could add support, a trader said. Non-commercial speculative funds hold a large short position in CBOT wheat, which leaves the market vulnerable to bursts of short covering.

However, there's a lack of fresh news to support gains and market fundamentals are bearish, traders said. U.S. and world wheat stocks are large, and the U.S. is facing intense competition for export business.

"The wheat continues to be confronted with big world supplies and U.S. prices that are not competitive in the world market," said Mark Gold, managing partner of Top Third Ag.

The demand front was mostly quiet overnight. Japan said it was seeking 136,000 tonnes of wheat, including 90,000 tonnes from the U.S., in a routine tender for delivery April 21 to May 20. South Korea's Major Feedmill Group bought two 55,000-tonne cargoes of optional origin feed wheat from Glencore for about US$205 a tonne, basis cost and freight, for delivery by the end of August a Seoul-based trading executive said.

U.S. wheat futures stumbled Monday. Daily charts indicate CBOT May wheat is set up to test last week's low of US$4.75 1/2 and possibly its contract low of US$4.72, said Mike Zuzolo, president of Global Commodity Analytics and Consulting. Concerns about the potential for delayed springtime planting of U.S. spring wheat could counteract some of the bearishness, he said.

Flooding expected in the Red River Valley of eastern North Dakota and western Minnesota could slow planting if the ground is too wet for farmers to get in their fields. The potential for flooding and subsequent planting delays has supported Minneapolis Grain Exchange spring wheat futures versus CBOT and Kansas City Board of Trade winter wheat futures lately, a trader said.