December 28, 2007

 

US Wheat Outlook on Friday: Pressure seen from e-CBOT, technical weakness

 

 

U.S. wheat futures are expected to start Friday's day session slightly lower following overnight weakness and amid some technical pressure, floor traders said.

 

Benchmark Chicago Board of Trade March wheat is called to open 2 to 4 cents per bushel lower. In e-cbot overnight trading, CBOT March wheat slipped 3 1/2 cents to US$9.11 1/2.

 

Follow-through selling and technical selling should weigh on the markets at the opening despite a small purchase from Egypt, traders said. CBOT March wheat tumbled Thursday and broke through some technical support levels, which is bearish, a CBOT floor broker said.

 

"Technically, we're starting to bleed a little bit," the broker said.

 

In a techincal sense, recent weakness in the wheat markets can be considered a correction of the latest rally move from the mid-November low, a technical analyst said. Retracement support, 50% of the Nov. 14 to the Dec. 17 rally, comes in around the US$8.86 area for CBOT March wheat, he said.

 

In order for the bulls to regain the upper hand in the short-term, a push back above the Dec. 26 high at US$9.52 1/2 would be an important first step, the analyst said. On the downside, technical support is seen at US$9.09, the Dec. 11 low, he said. First resistance is seen at US$9.52 1/2 and then at US$9.79. Short term support lies at US$9.09 and then at US$9.00.

 

"Daily momentum tools including slow stochastics and the relative strength index are trending solidly lower from overbought levels, which should keep the bearish pressure on near term," the analyst said.

 

The markets are expected to start out weaker even though Egypt booked some wheat and weekly U.S. wheat export sales were near the high end of estimates, the CBOT floor broker said. Egypt bought 30,000 tonnes of U.S. soft red wheat, 30,000 tonnes of Russian wheat and 200,000 tonnes of Kazakh wheat for delivery Feb. 15 to March 15.

 

The purchase of U.S. wheat isn't expected to give futures prices much of a boost because Egypt didn't take very much, the floor broker said.

 

"If it would have been 100,000 or 200,000 tonnes (of U.S. wheat), that would have been a different story," the broker said.

 

Weekly U.S. wheat export sales for the week ended Dec. 20 were 419,000 tonnes, according to the U.S. Department of Agriculture. The total sales, including 299,000 tonnes from the old-crop and 120,000 tonnes from the new-crop, were toward the high end of trade estimates of 200,000 tonnes to 550,000 tonnes, a CBOT trader said.

 

The top buyers of wheat for delivery in 2007-08 included Japan, which took 234,900 tonnes, and Mexico, which bought 59,400 tonnes. Sales of wheat for delivery in 2008-09 were for unknown destinations, the USDA said.

 

Traders said they did not expect to see heavy volume Friday as the markets are still in holiday mode. There continues to be talk at the CBOT that index funds will rebalance their positions in the first weeks of the new year, selling off wheat and soybean contracts while buying corn, a trader said. That is overhanging CBOT March wheat, he said.