September 24, 2009

 

US Wheat Outlook on Thursday: Seen starting down, may trade both sides

 

 

U.S. wheat futures are poised to start slightly lower Thursday and could trade both sides after ending the overnight session near unchanged, traders said.

 

Chicago Board of Trade December wheat is called to open 1 to 2 cents per bushel lower. In overnight electronic trading, CBOT December wheat shed 3/4 cent to US$4.59 1/4.

 

The markets continue to consolidate within their recent range, traders said. Large world supplies are fundamentally bearish, although short-covering could lend some support as speculative funds hold a large net short position in CBOT wheat, they said.

 

There is discussion about a decision by a Commodity Futures Trading Commission subcommittee to recommend a variable storage rate be implemented for CBOT wheat futures starting with the December 2009 contact month. The CME Group (CME), which owns the CBOT, has expressed concerns that the change in the nearby contract could impact pricing of the December/March spread.

 

A CBOT floor trader said there was no impact on the market overnight from the news of the subcommittee's recommendation. However, some market participants "appeared to be moving out of the December following suggestions the CFTC might move to impose variable storage rates on stored wheat in time for December delivery," according to a note from Farm Futures.

 

The CME is considering the variable storage rate as a potential fix for the lack of convergence between CBOT wheat futures and cash wheat. The markets are supposed to come together when futures contracts go into delivery to facilitate hedging, but cash prices have languished well below futures for at least two years.

 

In other news, total weekly U.S. wheat export sales of 495,900 tonnes were at the top of trade expectations of 300,000 to 500,000 tonnes. Net sales of 506,900 tonnes for delivery in 2009-10 were up 17% from last week but down 1% from the prior four-week average, according to the U.S. Department of Agriculture.

 

There is a lack of strong influence on wheat from outside markets like the U.S. dollar and crude oil, a CBOT trader said. Wheat has decoupled itself from the outside markets lately, he said.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$4.25, a technical analyst said. The 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 Wednesday's high of US$4.69 and then at US$4.75, the analyst said. First support lies at the contract low of US$4.50 and then at US$4.40, he said.

 

Looking at the weather, the spring wheat harvest will benefit from mostly above normal temperatures and little rainfall in the U.S. northern Plains during the next three to four days, according the DTN Meteorlogix.

 

In Australia, rains that hit important wheat areas in South Australia, Victoria and New South Wales helps improve the production outlook, Meteorlogix said. The forecast continues to feature some colder weather for southeast crop areas later this weekend and early next week, which could hurt flowering wheat if temperatures fall below freezing.