June 12, 2009

U.S. wheat futures are expected to start lower Friday on pressure from outside markets, advancing harvest activity and bearishness about comfortable world supply levels.

 

Chicago Board of Trade July wheat is called to open 7 to 10 cents per bushel lower. In overnight electronic trading, CBOT July wheat sank 10 1/4 cents to US$5.84 1/2.

 

Strength in the U.S. dollar and weakness in crude oil should weigh on the grains early, traders said. There could be some profit-taking in the grains as it is Friday and "people want to go to the bank," a CBOT floor analyst said.

 

Forecasts for expanding world wheat supplies are fundamentally bearish, analysts said. Wheat showed its weakness and "true colors" Thursday by sliding even though the dollar fell, he said. A lower dollar is usually seen as supportive for wheat.

 

"The key 'outside markets' were fully bullish for the wheat futures market Thursday, as the U.S. stock indexes were higher, the U.S. dollar was solidly lower and crude oil prices were solidly higher," a technical analyst said. "Yet, wheat could get no traction, which is a bearish clue."

 

Bears have the slight near-term technical advantage in wheat, the analyst said. The next downside price objective for bears is pushing and closing CBOT July wheat below solid technical support at US$5.63 1/4, he said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$6.35, he said.

 

First resistance is seen at US$6.00 and then at US$6.07 1/2. Support lies at US$5.80, the technical analyst said.

 

There continue to be worries about the potential for reduced U.S. spring wheat acreage and yields due to late planting and cool, wet weather in the northern Plains, traders said. Hard red spring wheat, traded at the MGE, has a higher protein content and should continue to gain on CBOT soft red wheat, a trader said.

 

Warmer temperatures during the weekend and early next week will favor spring wheat after recent cool-to-cold conditions, private weather firm DTN Meteorlogix said. However, it may turn wetter and cooler again later in the 10-day period, the firm said.

 

There are concerns about dryness elsewhere in the world. Rain is needed to support early growth of wheat in Argentina, especially in western crop areas, but the country is expected to stay mainly dry during the next seven days.

 

In the Canadian Prairies, crops should benefit from a warmer trend into the first part of next week, although western areas are still too dry, Meteorlogix said. The region looks to turn cooler and wetter again later next week, but rain may miss drier areas of western Saskatchewan and central and northern Alberta, the firm said.

 

The yield and quality of 2009-10 Canadian crops could be lower as a result of the poor weather conditions afflicting the prairie provinces, an official with the Canadian Wheat Board said. Given lower yield projections for the western Canadian wheat crop, wheat protein levels are expected to be average, he said, citing lower spring fertilizer applications and lower soil nitrogen levels.