August 18, 2009

US Wheat Outlook on Tuesday: Down on follow-through, neighboring markets

Follow-through selling from Monday and spillover pressure from neighboring markets should weigh on U.S. wheat futures early Tuesday, although some choppy trading is expected, analysts said.

Chicago Board of Trade December wheat is called to open 3 to 4 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 3 1/4 cents to US$4.96 1/4.

Wheat should follow CBOT corn and soybeans lower after all the markets finished weaker Monday, analysts said. However, wheat is technically oversold and could try to bounce after hitting fresh contract lows Monday, a trader said.

Some weakness in the U.S. dollar overnight could help underpin wheat, as it makes U.S. grain look more attractive to foreign buyers, an analyst said. Strength in the dollar and widespread commodity selling pressured wheat Monday.

"The commodity-wide selling pressure is not weighing on the markets today, so after a lower opening, look for some mild short-covering to occur for no reason other than it is a Tuesday," Midwest Market Solutions said in a grain comment.

Non-commercial speculative funds hold a large net short position in CBOT wheat.

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$4.50, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at the July low of US$5.32 3/4, he said.

First resistance is seen at Monday's high of US$5.08 3/4 and then at US$5.15, the technical analyst said. First support lies at the contract low of US$4.91 and then at US$4.75, he said.

Fundamentals continue to look weak for wheat, as the demand front remains quiet, an analyst said. Japan said it is seeking 126,000 tonnes of wheat, including 105,000 tonnes from the U.S., in a routine tender to be concluded Thursday.

There continue to be concerns about the potential for dryness in eastern Australia due to El Nino. Australian wheat prices may have stabilized after earlier falls "as weather conditions begin to raise the possibility of yield reductions in the northern cropping belt," according to marketing and logistics concern GrainCorp Ltd.

The U.S. Department of Agriculture rated U.S. spring wheat 74% good to excellent as of Sunday, up two percentage points from a week earlier. North Dakota, the top spring wheat-growing state, saw its rating rise to 88% from 84% last week.