November 18, 2009

 

US Wheat Outlook on Wednesday: Seen up; watching funds, outside markets

 

 

U.S. wheat futures are poised to start stronger Wednesday on technical and speculative buying, but trading could turn two-sided as the markets are in an overbought condition, analysts said.

 

Chicago Board of Trade December wheat is called to open steady to 5 cents per bushel higher. In overnight electronic trading, CBOT December wheat rose 3 1/2 cents to US$5.78 1/4, and CBOT March wheat was up 3 cents to US$5.99 1/2.

 

Traders will watch to see whether fund money continues to flow into the markets and support prices as it has recently, an analyst said. Weakness in the U.S. dollar and strength in outside markets like crude oil and gold are seen as supportive, he said.

 

"The outside markets are pointing the grains higher today," Country Hedging said.

 

Wheat is technically overbought after recent rallies and it lacks bullish fundamentals to support its gains, an analyst said. World supplies are large, and export demand for U.S. wheat has been lackluster.

 

The markets could come under some hedge pressure as farmers try to take advantage of the recent jump in prices, an analyst said. Wheat's run-up "has led to significant engagement by producers as many of whom, after reaping record yields, have plenty of crop left to market," according to Country Hedging.

 

Indeed, it's "doubtful" that current U.S. wheat prices can be maintained due to comfortable world supply levels and the advance of U.S. winter wheat plantings, Commerzbank said in a research note. Plantings started off slow but have almost caught up to the five-year average, although some states continue to lag behind.

 

Rain from the southern part of the western U.S. Midwest through much of the eastern Midwest this week will "further delay the summer crop harvests and winter crop planting this week," according to a forecast from private weather firm DTN Meteorlogix. The outlook for next week is showing more rain or snow in the region, the firm said.

 

In the central and southern Plains, conditions are "mostly favorable" for emerging and developing hard red winter wheat, used to make bread. The Midwest grows soft red winter wheat, used to make pastries and snack foods.

 

The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at US$5.40, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the August high of US$6.02, he said.

 

First resistance is seen at Tuesday's high of US$5.97 and then at US$6.00, the technical analyst said. First support lies at US$5.93 and then at Tuesday's low of US$5.77, he said.