December 28, 2009

US Wheat Outlook on Monday: Seen up on spillover support, overnight

Spillover support from other markets and money flowing into commodities are expected to boost U.S. wheat futures early Monday as traders kick off the final week of the year.

Chicago Board of Trade March wheat is called to open 8 to 10 cents per bushel higher. In overnight electronic trading, CBOT March wheat rose 9 3/4 cents to US$5.34 1/4.

Weakness in the U.S. dollar and strength in gold and crude oil prices are setting a positive tone for the grains, a CBOT floor analyst said. Wheat is expected to open stronger with neighboring CBOT corn and soybeans, which were firmer overnight, he said.

Supply and demand factors remain unsupportive for wheat. Export sales have been sluggish, and world supplies are comfortable. Many traders expect the U.S. Department of Agriculture to cut its forecast for U.S. wheat exports next month due to sluggish demand.

"Outside money continues to move into the wheat market whenever the dollar shows weakness," said Arlan Suderman, analyst for Farm Futures. "Yet, traders understand that strength in the wheat pit is only as strong as the dollar is weak, with little fundamental support of its own to justify a sustained rally at this point."

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, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.48, he said.

First resistance is seen at Thursday's high of US$5.31 1/4 and then at US$5.37 1/2, the technical analyst said. First support lies at Thursday's low of US$5.20 3/4 and then at the December low of US$5.14 1/4, he said.

Trading this week is expected to be thin and "erratic," with many participants stepping to the sidelines ahead of the new year, a trader said. The CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange will be closed Friday.

The U.S. hard red winter wheat crop, traded at the KCBT, should benefit from a protective layer of snow in the central and southern Plains, said Dennis Gartman, publisher of the Gartman Letter. Kansas, Oklahoma, Nebraska and the High Plains of Texas "have had rather material sums of snow over the past several days, and for the hard red winter wheat crop there is little that is better for the wintering crop than material snow cover," he said.

In China, meanwhile, wheat prices in major producing regions were unchanged in the week to Monday. China's 2009 grain output is expected to hit an all-time record high of at least 530 million metric tonnes, according to the state-owned Xinhua News Agency Sunday.