June 4, 2009

 

US Wheat Outlook on Thursday: Seen up 7-10 cents in rebound from losses

 

 

U.S. wheat futures are expected to start higher Thursday in a recovery from heavy selling Wednesday.

 

Chicago Board of Trade July wheat is called to open 7 to 10 cents per bushel higher. In overnight electronic trading, CBOT July wheat jumped 11 cents to US$6.28 1/2.

 

Wheat is due for a bounce as the sell-off Wednesday was overdone, a CBOT floor trader said. The markets were "beat up" in a correction from sharp recent gains amid pressure from strength in the dollar, he said.

 

"The bears had a field day yesterday, dominating from start to finish," Futures Techs said in a note. "Was this a bout of profit taking or the start of a new downtrend? We think the former, which makes this a buying opportunity."

 

Wheat could feel spillover support from gains in crude oil and in CBOT soybeans and corn, traders said. Losses in wheat helped pressure the neighboring markets Wednesday, they said.

 

No serious chart damage occurred Wednesday, but follow-through selling Thursday would likely produce "significant near-term chart damage," a technical analyst said. Traders are watching to see whether CBOT July wheat breaks below support around US$5.98 to US$6, a trader said.

 

A dip below US$6.14 1/2 and US$5.99 1/2 in CBOT July wheat would indicate Wednesday's slide was more than just a round of profit-taking, according to FuturesTechs. The market would then aim for a return to US$5.54, the firm said.

 

On the flip side, the market would prove the sell-off was a buying opportunity by climbing above US$6.42 1/2, FuturesTechs said. Beyond that level, "a fresh push to US$6.77 is on the cards," the firm said.

 

There are "plenty of bullets" for both bulls and bears moving forward, a CBOT trader said. Wheat's fundamentals did not support a recent run-up to eight-month highs, with demand considered lackluster and world supplies seen as adequate, analysts said.

 

The U.S. Department of Agriculture said weekly U.S. wheat export sales for the week ended May 27 totaled 265,400 tonnes, which was within trade estimates of 100,000 to 400,000 tonnes. Net sales of 177,000 tonnes for delivery in 2009-10 were primarily for Peru, which booked 40,000 tonnes, and Mexico, which bought 34,100 tonnes.

 

In other news, Argentina's 2009-10 wheat planting will drop to 3.2 million hectares (7.9 million acres), down 30% on the year and the smallest amount planted since records have been kept, the Buenos Aires Cereals Exchange said in its weekly crop report Wednesday. The new forecast is down 13.5% from the exchange's forecast last week.

 

A big decline in plantings in Argentina has probably been dialed into the markets already, a CBOT trader said. Argentina is basically saying it will not export much wheat at all, he said.

 

Brazil, which traditionally buys most of its wheat from Argentina, is expected to look to the world market to meet its needs, traders said. It is difficult to pencil in that business for the U.S. because Canada will likely be aggressive in sales and Russia could also provide competition, they said.