December 29, 2009

US Wheat Outlook on Tuesday: Seen starting lower in setback

U.S. wheat futures are poised to start lower Tuesday in a retreat from strong gains Monday, although the markets could find support from technical buying and expectations of fund buying, traders said.

Chicago Board of Trade March wheat is called to open 3 to 5 cents per bushel lower. In overnight electronic trading, CBOT March wheat dropped 5 cents to US$5.45 3/4 a bushel.

Wheat pulled back a bit overnight after rallying hard Monday. The markets could see a "Turnaround Tuesday" scenario during the day session, but the threat of fund buying early in the new year should help keep prices "supported the balance of the week," according to a note from Benson Quinn Commodities.

Trading should remain thin and choppy heading into the end of the year, which allows for exaggerated price moves, a trader said. The CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange have abbreviated trading sessions Thursday and will be closed Friday.

There is the potential for short-covering as Commodity Futures Trading Commission Data issued late Monday showed a "sizeable increase" in speculative funds' net short position in CBOT wheat futures and options, a trader said. Non-commercial speculative funds were net short 37,258 contracts as of Dec. 22, up from 19,530 contracts a week earlier, according to a CFTC supplemental report.

If CBOT March wheat extends Monday's rally, US$5.70 is its next upside target, a technical analyst said. Closes below US$5.26 are needed to suggest a short-term top has been posted, he said.

First resistance is US$5.51, and second resistance is at US$5.70, the technical analyst said. First support is at US$5.26, while second support is at US$5.14 1/2, he said.

Monday's gains were not due to wheat's supply and demand storyline, which is "so bearish," Benson Quinn Commodities said. World supplies are considered large, and export demand for U.S. wheat has been lackluster. The bearish fundamental factors could "force a little more liquidation" in the markets, Benson Quinn said.

Private weather firm DTN Meteorlogix said cold temperatures in the U.S. Midwest are not expected to harm wheat during the next seven days but noted the "pattern does bear watching." Wheat in the central and southern Plains, meanwhile, should be protected from cold weather by a layer of snow on the ground, according to the firm.