August 20, 2009

 

US Wheat Outlook on Thursday: Steady as markets digest exports, CFTC

 

 

U.S. wheat futures are called to start steady Thursday, with two-sided trading possible as the markets digest export news and a push by government regulators to enforce position limits.

 

In overnight electronic trading, Chicago Board of Trade December wheat rose 3/4 cent to RMB4.94 1/4.

 

Trading should be choppy as the markets consolidate a bit after recent losses, an analyst said. There is a lack of strong leadership from outside markets, with crude oil down slightly and the U.S. dollar trading a bit higher, he said.

 

Total weekly U.S. wheat export sales of 393,900 tonnes were at the low end of trade expectations, which ranged from 350,000 tonnes to 550,000 tonnes. Net sales of 358,900 tonnes for delivery in 2009-10 were down 25% from the previous week and 26% from the prior four-week average. Major buyers included Indonesia, which booked 58,000 tonnes, and Thailand, which bought 52,000 tonnes, according to the U.S. Department of Agriculture.

 

The U.S. has priced itself into some wheat business following recent sell-offs, a CBOT floor trader said. Egypt, a major buyer on the world market, on Wednesday secured 120,000 tonnes of U.S. wheat out of a total purchase of 270,000 tonnes.

 

Japan said Thursday it bought 126,000 tonnes of wheat, including 105,000 tonnes from the U.S., in a routine tender. The shipment is expected to be delivered Oct. 1 to Oct. 31.

 

Traders continue to digest news that regulators at the Commodity Futures Trading Commission revoked exemptions previously granted to two investment firms that allowed them to go beyond federal limits on holdings of wheat, corn and soybeans. The news was initially construed as bearish Wednesday as traders predicted funds would have to liquidate positions to comply with the limits.

 

"While this announcement had a short-term negative effect on wheat, long term it will help the stability and the integrity of the markets," said Mark Gold, managing partner at Top Third Ag. "Index funds are still long so there maybe more pain ahead before the market heals. The wheat needs to see some fundamental strength from good exports in order for the market to turnaround."

 

Weather for wheat remains mostly favorable, a trader said. A drier, warmer period in the northern U.S. Plains may improve conditions for the spring wheat harvest on Friday and during the weekend, according to private weather firm DTN Meteorlogix.

 

The next downside price objective for bears is pushing and closing CBOT December wheat below solid technical support at RMB4.50, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the July low of RMB5.32 3/4, he said.

 

First resistance is seen at this week's high of RMB5.08 3/4 and then at RMB5.15. First support lies at Wednesday's contract low of RMB4.85 1/2 and then at RMB4.75.