December 17, 2009

US Wheat Outlook on Thursday: Seen down 7-10 cents on overnight, firm dollar

The rising U.S. dollar and sluggish export demand are expected to keep U.S. wheat futures on the defensive at the start of Thursday's day session.

Chicago Board of Trade March wheat is called to open 7 to 10 cents per bushel lower. In overnight electronic trading, CBOT March wheat fell 9 1/2 cents to US$5.27 3/4.

Wheat tumbled overnight with neighboring CBOT corn and soybeans, as all the markets came under pressure from a surge in the dollar index, which tracks the currency against a basket of six others, to a more than three-month high, analysts said. A strong dollar is often seen as a bearish influence because it makes U.S. commodities less attractive to foreign buyers.

Export demand for U.S. wheat has struggled this marketing year, which began in June, due to stiff competition for export business from other countries. Weekly U.S. wheat export sales for the week ended Dec. 10 were 345,000 tonnes, within trade expectations of 200,000 tonnes to 450,000 tonnes.

In other export news, Japan said it bought 126,000 tonnes of wheat, including 86,000 tonnes from the U.S., in a routine tender issued Tuesday and concluded Thursday. French analytical firm Strategie Grains, meanwhile, estimated 2010-11 soft wheat plantings in the European Union will rise 1%, boosting EU soft wheat production by 3% on the year to 133 million tonnes.

U.S. 2010-11 wheat acreage is thought to be down from the previous year due to planting delays in the Midwest and south and weak cash prices. Still, world wheat supplies are comfortable and projected by the USDA to be at an eight-year high.

Looking at technical charts, wheat bears have the overall near-term technical advantage, a technical analyst said. The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the November low of US$5.07 1/2, he said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.70, he said.

First resistance is seen at Wednesday's high of US$5.44 and then at this week's high of US$5.48, the analyst said. First support lies at last week's low of US$5.30 and then at Wednesday's low of US$5.27 3/4, he said.

Daily charts for wheat are "terrifically oversold on many oscillators," but the weekly chart shows that "wheat is more in the overbought area and could be pointing lower again," according to a note from Global Commodity Analytics and Consulting. A move below US$5.30 in CBOT March wheat suggests further erosion toward an eventual target near the US$5.05 area, the firm said.