December 31, 2007

 

US Wheat Outlook on Monday: 3-5 cents lower on profit-taking

 

 

U.S. wheat futures are expected to start Monday's day session weaker as traders book profits ahead of the new year, analysts said.

 

Benchmark Chicago Board of Trade March wheat is called to open 3 to 5 cents per bushel lower. In e-cbot overnight trading, CBOT March wheat stumbled 3 1/2 cents to US$8.89 1/2.

 

Wheat futures on Friday closed limit down in some contracts amid end-of-the-year profit-taking, and there should be follow-through selling Monday, traders said. There was not much fresh bullish news out during the weekend to push prices higher, they added.

 

China on Sunday said it would levy taxes next year on exports of basic food products, including wheat and soybeans. The tax is an apparent effort to slow a surge in food prices by encouraging producers to sell more at home, although electronic markets seemed to shrug off the news, a trader said.

 

The wheat markets are feeling "tired" after a recent run to all-time highs, an analyst said. The U.S. winter wheat crop is dormant, and there are bearish ideas that demand for U.S. wheat is slowing down, he said.

 

Egypt, a closely-watched buyer on the world wheat market, is looking to import 200,000 metric tonnes of Iranian wheat in 2008, according to government officials. The deal is expected to take place within the coming few weeks.

 

Egypt is also looking to import 1 million tonnes of Kazakhstan wheat during 2008 with the first batch set to arrive in February. The ministry didn't give further details regarding the price of the wheat.

 

Looking at the weather, conditions will be much colder for a few days this week through soft red winter wheat areas in the eastern U.S. Midwest and Delta, DTN Meteorlogix said. Still, temperatures will probably not sink low enough to harm the plants, the private weather firm said.

 

In the central and southern U.S. Plains, adequate snow cover likely protected hard red winter wheat from damage from a weekend cold snap, Meteorlogix said. The region is expected to turn warmer during the week, and there are no significant cold weather threats for HRW wheat during the next seven days, the firm said.

 

Technically, CBOT March wheat remains under the bearish influence of a Dec. 17 reversal day, a technical analyst said. 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, he said.

 

For now, the recent sell-off can still be considered corrective, in a technical sense, following the latest rally move from the mid-November low, the analyst said. Retracement support, 50% of the Nov. 14 to the Dec. 17 rally, for CBOT March wheat comes in around the US$8.86 area, near Friday's low, he said.

 

However, the contract is now trading below both its 10- and 20-day moving average. In order for the bulls to regain the upper hand near term short-term, a push back above the Dec. 26 high at US$9.52 1/2 a bushel would be an important first step, the analyst said.

 

On the downside, technical support is seen at US$8.68, the 40-day moving average, the analyst said. The next important support level below that lies around US$8.56, roughly 38.2% of the rally from mid-November to mid-December.

 

Trading is expected to be thin and choppy, with some traders absent from the markets for the holidays. The CBOT, Kansas City Board of Trade and Minneapolis Grain Exchange will close at 1 p.m. EST ahead of the New Year.