October 9, 2009

 

US Wheat Outlook on Friday: Seen falling on larger carryout estimate

 

 

U.S. wheat futures are poised to start lower Friday after a government crop report reminded the markets of large world supplies.

 

Chicago Board of Trade December wheat is expected to open 5 cents to 10 cents per bushel lower, although some traders called for more modest losses. In overnight electronic trading, CBOT December wheat fell 4 cents to US$4.70.

 

The U.S. Department of Agriculture, in its October supply and demand report, raised its projections for 2009-10 U.S. wheat ending stocks to a nine-year high of 864 million bushels from its September estimate of 734 million. The average of analysts' pre-report estimates was 798 million.

 

The USDA cut its forecast for U.S. wheat exports by 50 million bushels to 900 million "as larger supplies in major export competitors reduce prospects for U.S. wheat shipments," according to the report. It reduced the projection for feed and residual use to 190 million tonnes from the September estimate of 235 million.

 

The increase in carryout is "absolutely horrible" for wheat futures, according to Global Commodity Analytics & Consulting. CBOT December wheat may test recent lows near US$4.40 due to the report, the firm said in a note.

 

Wheat has come under pressure during the past several months from bearishness about large global supplies and lackluster export sales. There hasn't been a strong demand for U.S. wheat because there is a lot to go around in the world.

 

Some traders said they expected more-modest losses than others, as it was already known that world supplies are comfortable. They said they expected CBOT December wheat to open about 2 to 5 cents lower.

 

Despite bearish fundamentals, the markets have rallied this week on short-covering, technical buying and support from other markets. CBOT December wheat on Thursday hit a one-month high in a bear market rally.

 

Neighboring and outside markets do not look supportive Friday, traders said. Neighboring CBOT corn is expected to start lower, while the U.S. dollar is higher and crude oil is falling.

 

"You're seeing a little bit of correction with the macro markets this morning," said Jim Gerlach, president of AC Trading. "All the commodities are lower."

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at the contract low of US$4.39 1/4, a technical 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 Thursday's high of US$4.83 and then at US$5.00. First support lies at Thursday's low of US$4.62 1/2 and then at US$4.53 3/4.