November 27, 2009

US Wheat Outlook on Friday: CBOT seen down 10-13 cents on dubai fears

Wheat futures on the Chicago Board of Trade are expected to open 10 to 13 cents lower as Dubai debt worries sent shudders through the global financial system and sent the U.S. dollar higher.

In electronic trading, December wheat was down 13 1/2 cents to US$5.36 3/4 a bushel, and March futures were down 13 3/4 cents to US$5.57 3/4.

Stock markets in Asia, Europe and the U.S. sold off on news late Wednesday that Dubai World, the city-state's largest corporate entity, asked creditors for a six-month stay on repayment of its US$60 billion in debts.

The dollar surged as investors sought safe havens, stirring bearish sentiment in CBOT grains. Additionally, the Dubai news raised the specter of a broader financial calamity that leads to speculative liquidation in commodity markets.

"The trade is a little bit worried that Dubai is going to be the pebble in the pond that's going to cause ripple effects through the financial world," said Mike Zuzolo, president of Global Commodity Analytics & Consulting in Lafayette, Ind.

A stronger dollar hurts demand for U.S. commodities by making wheat, corn and other grains more expensive for foreign buyers.

Worries over Dubai compound the heavy supplies overhanging U.S. wheat prices and an eroding technical picture, Zuzolo said.

CBOT December wheat has trend line support, drawn from the September lows, in the US$5.33-to-US$5.35 a bushel area, he said. A push below that level "opens the door for further downside," potentially below US$5, Zuzolo said.

The likelihood of deliveries against the December contract starting next week may also weigh on wheat futures, he said.