August 14, 2009

 

US Wheat Outlook on Friday: Seen drifting lower on weak fundamentals

 

 

Bearishness about export demand and large global supplies and a lack of spillover support are expected to weigh on U.S. wheat futures at the start of Friday's day session.

 

Chicago Board of Trade September wheat is called to open 2 to 3 cents per bushel lower. In overnight electronic trading, CBOT September wheat fell 2 3/4 cents to US$4.78 3/4 and CBOT December wheat fell 2 3/4 cents to US$5.06 1/2.

 

The markets should continue to grind lower as nothing has happened to change the weak fundamental storyline, said Larry Glenn, analyst for Frontier Ag. The U.S. Department of Agriculture this week confirmed that world supplies were expanding. Demand has been seen as sluggish amid a lack of sales to major importers, such as Egypt.

 

"It seems like the market is definitely focused on the demand side," Glenn said. "Without that, we're probably going to drift back down some. The trend on the charts is down. We're oversold, but we have not come to a point where the world's importers think the wheat's a value yet."

 

Weakness in neighboring CBOT corn and soybeans could add pressure to wheat, traders said. Outside markets are sending "mixed signals" to the grains as the dollar is lower, which is normally seen as supportive, and crude oil is lower, which is seen as bearish, Glenn said.

 

It was a "bearish clue" for wheat that the markets ended lower Wednesday even though outside markets were supportive for the grains, a market technician said. Wheat could "get no traction," he said.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below major psychological support at US$5.00, the technician said. The 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. First support lies at this week's low of US$5.03 1/2 and then at US$5.00, he said.

 

"It seems we're playing defense," Glenn said.

 

Looking at the weather, periods of rain and cooler temperatures in the northern U.S. Plains during the next five to seven days will be unfavorable for maturing spring wheat and early harvest activities, according to private weather firm DTN Meteorlogix. A turn to cool, wet weather in the Canadian Prairies during the next five days will favor developing and filling crops, the firm said.

 

In Australia, conditions are "mostly favorable," although more rain is needed in the minor growing area of southern Queensland, Meteorlogix said. Dryness remains a serious concern in Argentina, with some rain expected during the weekend in eastern areas, the firm said.