November 3, 2009

 

US Wheat Outlook on Tuesday: Expected to retreat from Monday's rally

 

 

U.S. wheat futures are poised to fall early Tuesday in a setback from a sharp rally Monday and under pressure from bearish outside markets.

 

Chicago Board of Trade December wheat is called to open 6 to 10 cents per bushel lower. In overnight electronic trading, CBOT December wheat sank 8 1/4 cents to US$5.08 1/2.

 

Wheat's rally Monday was seen as overdone and fueled by fund buying, traders said. Prices climbed in the final minutes of trading without fundamental support, they said.

 

"I think we're going to give up some of the gains," said Larry Glenn, broker and analyst at Frontier Ag. "I wouldn't be surprised if we would lose at least half of it today."

 

Still, traders will be on the look-out for a "possible return" of fund buying, according to a note from Benson Quinn Commodities. Prices will bleed lower if the funds "accomplished their mission in one day and are absent" Tuesday, the firm said.

 

Strength in the U.S. dollar and losses in crude oil should add pressure to the grains, traders said. A firm U.S. dollar makes U.S. grains less attractive to foreign buyers.

 

"The grain and oilseed markets will be on the defensive this morning but traders will be cautious after yesterday's large influx of index fund buying on the close shot markets higher," Benson Quinn said.

 

Fundamentals are considered bearish because world wheat supplies are large and the pace of export sales has been lackluster. The demand front was quiet overnight, with Japan saying it will not issue its regular weekly wheat tender due to a public holiday in Japan.

 

Traders are monitoring the slow pace of soft red winter wheat planting in the U.S., but it's hard to get too worried when world supplies are comfortable, an analyst said.

 

The U.S. Department of Agriculture said 79% of winter had been planted as of Sunday, up 3 percentage points from the previous week and below from the five-year average of 90%. Sixty-four percent of the crop had emerged, compared with 74% last year and the average of 75%.

 

Drier and warmer weather in the U.S. Midwest should help advance SRW wheat planting and the corn and soybean harvests for the next six days or so, according to private weather firm DTN Meteorlogix. Many producers plant SRW wheat after soybeans in the Midwest and South.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$4.80, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.29, he said.

 

First resistance is seen at Monday's high of US$5.18 3/4 and then at US$5.25, the analyst said. First support lies at US$5.00 and then at Monday's low of US$4.87 3/4, he said.