March 19, 2009

 

US Wheat Outlook on Thursday: Seen 10-15 cents higher on sinking US dollar

 

 

A collapse in the U.S. dollar and gains in outside markets are expected to push U.S. wheat futures higher at the start of Thursday's day session.

 

Chicago Board of Trade May wheat is called to open 10 cents to 15 cents per bushel higher. In overnight electronic trading, CBOT May wheat jumped 15 cents to US$5.45.

 

The U.S. dollar sank after the Federal Reserve surprised investors Wednesday by saying it will buy US$300 billion in longer-dated Treasurys during the next six months, along with another US$850 billion in mortgage-related debt. A weak dollar is considered bullish for grains because it makes U.S. wheat more attractive to foreign buyers.

 

"The U.S. dollar is in freefall, which will likely pull in fresh investment into commodities," AgResource Co. said in a note.

 

Strong outside markets, such as crude oil and gold, should help create a firm tone in grains because funds often trade in a basket of commodities, a trader said. Activity in the outside markets will trump fundamental factors in grains, he said.

 

"After the market closed [Wednesday] and after the FOMC announcement, the U.S. dollar was hammered lower and the stock market rallied," a technical analyst said. "That should provide the bulls with momentum on Thursday morning."

 

U.S. wheat export demand would not help support the markets anyway, traders said. Weekly export sales look "weak" as the U.S. has priced itself out of the global market, a CBOT trader said.

 

Total export sales for the week ended March 12 were 235,800 tonnes, at the low end of trade estimates of 200,000 tonnes to 550,000 tonnes. Net sales of 213,800 tonnes for delivery in 2008-09 were down 41% from the previous week and 45% from the prior four-week average, according to the U.S. Department of Agriculture.

 

Sales of soft red winter wheat, traded at the CBOT, were 28,500 tonnes, which was disappointing, a trader said. China, which struggled with dryness in wheat areas earlier this year, bought 6,000 tonnes of U.S. SRW wheat for delivery in 2008-09, according to the USDA.

 

In other export news, Iraq issued a new tender to buy at least 50,000 tonnes of hard wheat Thursday, the Grain Board said in a tender document. Companies have to submit their offers to the board between March 29 and April 3, it said.

 

Tunisia said it bought 75,000 tonnes of durum and soft wheat in a tender on a cost and freight basis. Japan said it bought 106,000 tonnes of wheat, including 85,000 tonnes from the U.S., in a routine tender concluded Thursday.

 

The next downside price objective for the bears is pushing and closing CBOT May wheat below solid technical support at US$5.11 1/2, the technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.59, he said.

 

First resistance is seen at US$5.40 and then at US$5.50. First support lies at US$5.28 1/4 and then at US$5.25, the analyst said.