March 26, 2009

 

US Wheat Outlook on Thursday: Rebound expected, with outside support

 

 

U.S. wheat futures are poised to start higher Thursday in a rebound from sharp losses during the previous two days.

 

Chicago Board of Trade May wheat is called to open 3 to 5 cents per bushel higher. In overnight electronic trading, CBOT May wheat rose 5 1/2 cents to US$5.13 1/2.

 

The markets are due for a bounce after falling hard Tuesday and Wednesday, a CBOT floor trader said. The move was a "little overdone to the downside," he said.

 

"It really took the heart out of the bulls the last couple days," he said.

 

Strength in outside markets like equities and crude oil should help create a positive tone for the grains, traders said. Weakness in the U.S. dollar is friendly because it makes U.S. commodities more attractive to foreign buyers.

 

Weekly U.S. wheat export sales were "pretty solid," a CBOT trader said. The U.S. Department of Agriculture reported total export sales of 388,200 tonnes for the week ended March 19, within trade estimates of 200,000 tonnes to 450,000 tonnes.

 

Sales of 264,200 tonnes for delivery in 2008-09 were up 24% from the previous week but down 20% from the prior four-week average, according to the USDA. Top buyers included Japan, which booked 96,000 tonnes, and Egypt, which bought 69,600 tonnes, including 60,000 tonnes switched from unknown destinations.

 

Traders continue to keep an eye on weather in the U.S. central and southern Plains, where precipitation is expected to help ease dryness. However, it could be slightly supportive for prices that much of the precipitation is falling as snow, which could threaten emerging hard red winter wheat plants, a trader said.

 

"More precipitation is still needed to support the developing crop in the west," private weather firm DTN Meteorlogix said. "There appears to be a significant promise of moderate to heavy precipitation in much of the driest areas of the west within the next few days, with more chances later in the 10-day period as well."

 

A combination of melting snow and significant precipitation will lead to serious flooding in the Red River Valley over the eastern Dakotas and northwest Minnesota, according to Meteorlogix. Major delays in spring fieldwork can be expected in the area, where farmers grow hard red spring wheat and other crops, the firm said.

 

Traders are awaiting next Tuesday's USDA planting intentions and quarterly grain stocks report, which will include estimates on spring wheat seedings. Positioning is expected in front of the reports, traders said.

 

The next downside price objective for the bears is pushing and closing CBOT May wheat below solid technical support at US$4.98 1/2, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.50, he said.

 

First resistance is seen at US$5.20 and then at US$5.25. First support lies at Wednesday's low of US$5.06 3/4 and then at US$5.00.