July 8, 2008


US Wheat Outlook on Tuesday: Seen down slightly on corn, soy pressure



U.S. wheat futures are poised to start Tuesday's day session weaker on spillover pressure from heavy losses in neighboring markets.


Chicago Board of Trade September wheat is called to open 1 to 2 cents per bushel lower. In overnight electronic trading, CBOT September wheat slipped 1 cent to US$8.35, while CBOT December wheat dropped 1 cent to US$8.58.


Weakness in CBOT corn and soybeans is expected to weigh on wheat, which is seen as a follower of the other markets, traders said. Corn and soybeans tumbled overnight amid favorable weather outlooks and on follow-through selling from limit-down losses Monday.


It will be tough for wheat to start only slightly lower if corn and soybeans are down hard when the opening bell rings, a CBOT floor analyst said. Corn, in particular, could pressure wheat as both grains are used for animal feed, he said.


However, wheat may be able to resist some of the spillover pressure from the row crops, as it has already dropped considerably from all-time highs hit early this year, a trader said. Corn and soybeans, on the other hand, have more room to pull back as they are trading at historic highs, he said.


Wheat could find some support from an unexpected decline in the U.S. Department of Agriculture's good-to-excellent rating for spring wheat, the CBOT floor analyst said. The agency lowered its good-to-excellent rating by five percentage points to 69%, while traders had expected the rating to stay steady or increase by as much as two percentage points.


In other news, the USDA said 52% of the U.S. winter wheat crop was harvested as of Sunday, up from 36% the previous week but below the five-year average of 61%. The pace of cutting was in line with traders' expectations.


Local harvest delays continue for hard red winter wheat due to scattered thundershowers in the U.S. central and southern Plains early this week, DTN Meteorlogix said. Conditions may improve later in the week, the private weather firm said.


Traders continue to keep concerns about dryness in Southern Hemisphere wheat areas in the back of their minds, an analyst said. Argentina and Australia need rain, although there is still time for moisture to benefit the crop, he said.


Bears have regained the near-term technical advantage in CBOT December wheat as prices have backed off sharply from a late-June high, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at Monday's high of US$9.05, he said. The next downside price objective for the bears is pushing and closing prices below solid technical support at US$8.00.


First resistance is seen at US$8.77 and then at US$9.00. First support lies at Monday's low of US$8.51 and then at US$8.35.

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