August 29, 2008

 

US Wheat Outlook on Friday: Bearish technical momentum continues

 

 

U.S. wheat futures are expected to open Friday's day session lower, as technical momentum continues to pressure prices.

 

Chicago Board of Trade December wheat is called to open 5 to 7 cents per bushel lower, following a downward trend evident throughout the week. In overnight electronic trading, CBOT December wheat dropped 7 1/4 cents to US$8.03 3/4.

 

CBOT corn closed lower overnight, while soybeans had modest gains. In electronic trading, the U.S. dollar is slightly weaker, while crude oil is trading more than US$2 above Thursday's closing price. Traders will monitor these outside markets for direction in Friday's wheat trade, a technician market said.

 

"Wheat should see more selling on the open today, as the market continues its technically inspired meltdown," said Bryce Knorr, senior editor of Farm Futures. "A bearish start to deliveries on first notice day for September futures could add to the distress."

 

Friday marks first notice day for the CBOT September wheat contract. There were 4,032 total contracts delivered. Commercial trading housing were the biggest issuers, with the house account of ADM Investor Services issuing 1,200 contracts and Fortis issuing 1,002. Newedge stopped 855 and Rosenthal stopped 669.

 

The deliveries were heavier than trade expectations, Knorr said.

 

"While historically weak basis encouraged deliveries, traders noted that the market pulled back a little this week from full carry, making deliveries less attractive," he said. "Deliveries back in July were also much lighter, which had lessened expectations for September."

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below major psychological support at US$8 with first support at Thursday's low of US$8.01 1/2, a technical analyst said.

 

The bulls' next upside price objective is to push and close December futures prices above solid technical resistance at US$8.50 a bushel, he said. First resistance is seen at US$8.20 and then at Thursday's high of US$8.30 1/2.

 

Dry conditions currently dominate the U.S. northern Plains, with rain expected to move across the state Sunday and Monday, DTN Meteorlogix said.

 

Temperatures are now in the normal-to-well-above-normal range, but will begin dipping below normal on Monday and Tuesday, the private weather firm said.

 

"Wet and sometimes cool weather may be unfavorable for maturing wheat and could delay the harvest," Meteorlogix said.

 

Australia's benchmark wheat futures contract - ASX January 2009 - slipped AUS$1 to AUS$340/metric tonne, down almost 10% since Monday.

 

Even a big wheat crop in Western Australia won't be able to entirely offset poor yields expected in parts of the eastern states, so national output might only reach 20 million metric tonnes this year, said Brett Stevenson, director of agricultural risk management adviser MarketCheck.

 

A 20-million tonne national wheat crop would likely be the maximum unless there's a major turnaround in the weather, Stevenson said. His estimate was at the lower end of industry expectations ranging up to 24 million tonnes.

 

"Even with (recent) rain, they've got an enormous way to go to develop fully into a big plant that's going to produce a lot of grain," he said.

 

The industry has been buoyed by reasonable conditions for parts of Australia's wheat lands after drought slashed production to 13 million tonnes last year and 11 million tonnes in 2006, less than half of the record 26 million tonnes in 2003.