March 25, 2010

 

US Wheat Outlook on Thursday: Up 1-2 cents on short-covering, outside markets

 

 

Technical buying and supportive outside influences are expected to boost U.S. wheat futures early Thursday as the markets recover a bit from recent losses.

 

Nearby Chicago Board of Trade May wheat is called to open 1 to 2 cents per bushel higher. In overnight electronic trading, CBOT May wheat rose 2 cents, or 0.4%, to US$4.78.

 

Short-covering and firm outside markets look supportive to prices, a CBOT floor analyst said. Non-commercial speculative funds are heavily short in CBOT wheat, which leaves the market vulnerable to short-covering rallies.

 

Weakness in the U.S. dollar and strength in crude oil and precious metals create a positive tone for the grain markets, an analyst said. The outside markets are linked to the grains because funds often trade in a basket of commodities.

 

Brokerage firm Country Hedging called prices to start 1 to 2 cents higher "if the dollar stays lower today." A soft dollar can be seen as supportive due to the perception that it increases investors' appetite for risk and makes U.S. grain more attractive to foreign buyers.

 

Weekly U.S. wheat export sales of 519,200 metric tonnes were toward the high end of estimates, which ranged from 250,000 to 550,000 tonnes. Net sales of 371,200 tonnes for delivery in 2009-10 were up 14% from the previous week and 23% from the prior four-week average, according to the U.S. Department of Agriculture.

 

Despite the solid sales, the U.S. faces stiff competition for export business on the world market, particularly from France and the Black Sea region. Reports of Europe selling wheat to southeast Asian countries have been disappointing, traders said.

 

Weak fundamentals and a downtrend on technical charts should make it tough for wheat to sustain any gains, a trader said. CBOT May wheat is trading near its contract low of US$4.72.

 

"Charts look weak and the fundamentals are in place to keep a weaker bias," Benson Quinn Commodities said. "Short-covering rallies triggered by outside markets remain selling opportunities."

 

The next downside price objective for bears is pushing and closing CBOT May wheat below US$4.72, a technical analyst said. Bulls' next upside price objective is to close the contract above solid technical resistance at US$5.00, he said.

 

First resistance is seen at US$4.89 and then at US$5.00. Support lies at US$4.72 and then at US$4.65, the analyst said.