September 16, 2009

 

US Wheat Outlook on Wednesday: Markets expected to pull back after rally

 

 

U.S. wheat futures are expected to start weaker Wednesday as the markets pull back from Tuesday's gains amid a lack of spillover support and fundamental strength, traders said.

 

Chicago Board of Trade December wheat is called to open 4 to 7 cents per bushel lower. In overnight electronic trading, CBOT December wheat dropped 6 1/2 cents to US$4.64.

 

Rallies in the grains Tuesday were "overdone" and set the markets up for some quick profit-taking, a CBOT floor analyst said. Short-covering sparked by gains in neighboring CBOT corn and soybeans helped carry wheat higher.

 

The row crops on Tuesday climbed on fears about the potential for frost in the U.S. next week, although forecasts now look "less threatening," the floor analyst said. Traders will keep a close eye on the midday weather update.

 

Wheat has the potential to see more short-covering because speculative funds hold a large short position in CBOT wheat. However, wheat lacks the bullish fundamental story line of its own to support gains, analysts said. World supplies are considered large, and export demand has been disappointing this marketing year.

 

Egypt, a major buyer on the world wheat market, on Tuesday booked 240,000 tonnes of Russian wheat in a tender and none from the U.S. An increase in U.S. prices makes the U.S. less competitive for export business, an analyst said.

 

CBOT December wheat Tuesday scored a "bullish 'outside day' up" on the daily bar chart, a technical analyst said. Good follow-through buying Wednesday would confirm a bullish "key reversal" up on the daily bar chart, he said.

 

"That would be one early clue that a market bottom is in place," the analyst said. "But right now, wheat bears still have the overall near-term technical advantage."

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$4.25, the analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.00, he said.

 

First resistance is seen at Tuesday's high of US$4.81 1/2 and then at US$4.90. First support lies at US$4.60 and then at Tuesday's contract low of US$4.50, the analyst said.

 

In other news, Australia's Bureau of Meteorology said an unusual El Nino climate episode was persisting in the Pacific Basin and should continue until the end of the year. El Nino periods are usually, but not always, associated with below-normal rainfall in the second half of the year across large parts of southern and inland eastern Australia.

 

Jointing to reproductive wheat in New South Wales and Queensland needs rain to reverse a recent drying, according to private weather firm DTN Meteorlogix. A chance for rain early next week for the eastern wheat belt is a little farther south than it was Tuesday, which means "a somewhat less chance for significant rains reaching into Queensland wheat areas than was thought," the firm said. Still, most New South Wales wheat areas should benefit from the rain, it said.