August 13, 2009

 

US Wheat Outlook on Thursday: 3-5 cents up on short-covering, outside support

 

 

Short-covering and support from other markets are expected to carry U.S. wheat futures higher at the start of Thursday's day session.

 

Chicago Board of Trade September wheat is called to open 3 to 5 cents per bushel higher. In overnight electronic trading, CBOT September gained 4 1/2 cents to US$4.94 3/4, and CBOT December wheat rose 4 3/4 cents to US$5.22 1/2.

 

Wheat is technically oversold and due for a bounce after recent losses, an analyst said. Nearby CBOT and Kansas City Board of Trade September wheat set fresh contract lows Wednesday before bouncing and closing higher. Short-covering is seen as supportive at the CBOT, as non-commercial speculative funds continue to hold a large net short position, traders said.

 

Weakness in the U.S. dollar, gains in crude oil and expected strength in equities should help underpin the grains, a CBOT floor analyst said. A soft dollar is considered supportive because it makes U.S. wheat more attractive to foreign buyers.

 

Weekly U.S. wheat export sales of 479,100 tonnes for delivery in 2009-10 were within trade expectations. The export sales were down 13% from last week but unchanged from prior four-week average, according to the U.S. Department of Agriculture. Top buyers included Japan, which booked 83,600 tonnes; Nigeria, which bought 67,500 tonnes; and Egypt, which bought 66,000 tonnes.

 

Traders have been looking for a pick-up in export demand to give prices a boost, but large world supplies continue to hang over the markets, an analyst said. The U.S. Department of Agriculture on Wednesday raised its estimates for global wheat production and carryout.

 

In other news, the Buenos Aires Cereals Exchange said in its weekly crop report that Argentine wheat conditions continue to vary widely. Conditions in eastern areas are improving due to warm, moist weather, but drought continues in the west, it said.

 

Argentine producers have planted 95% of the forecast 2.75 million hectares so far. Plnated area is expected to be down 40.2% on the year due to drought and represents the smallest area going to wheat in more than 100 years.

 

Some rain is expected in Argentina during the weekend, further favoring eastern areas, according to private weather firm DTN Meteorlogix. In the U.S., hot, dry weather in the northern Plains favors maturing spring wheat and the beginning harvest, but cool, wet weather is expected this weekend, the firm said.

 

In Europe, French analytical firm Strategie Grains in a report increased its estimate for E.U. 2009-10 soft wheat production to 130 million metric tonnes from its July estimate of 126.5 million tonnes due to good harvest results. The report said wheat prices are likely to remain under pressure because supplies are ample.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below major psychological support at US$5.00, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.60, he said.

 

First resistance is seen at this week's high of US$5.26 3/4 and then at the July low of US$5.32 3/4, the analyst said. First support lies at Wednesday's low of US$5.03 1/2 and then at US$5.00, he said.