August 27, 2008

 

US Wheat Outlook on Wednesday: 2-4 cents higher on weak dollar, spillover

 

 

U.S. wheat futures are poised to start Wednesday's day session modestly firmer on weakness in the dollar and borrowed strength from the row crops.

 

Chicago Board of Trade December wheat is called to open 2 to 4 cents per bushel higher. In overnight electronic trading, CBOT December wheat edged up 2 1/2 cents to US$8.57.

 

Wheat should start out higher after rising overnight, although the markets could trade both sides in "sloppy" activity, a CBOT floor trader said. Volatility in the markets has been high lately.

 

The softer greenback is seen as supportive for wheat after strength in the dollar pressured the grains Tuesday. The dollar's influence is "a reversal of fortunes from (Tuesday)," the floor trader said.

 

There was not much fresh fundamental news out overnight for the wheat markets to digest. Turkey's state grain board said it issued a tender to purchase 250,000 metric tonnes of wheat from international sources, according to the Ihlas News Agency.

 

The tender is not overly supportive for the markets because Turkey would take soft red wheat, of which the U.S. has an abundance, a CBOT trader said. The bidding deadline for the tender is Sept. 2.

 

Corn and soybeans were higher overnight, and should help lead wheat to the upside, traders said. The row crops continue to watch weather forecasts amid concerns about the potential for damaging dryness and an early frost in the U.S. Midwest.

 

Wet conditions in the U.S. northern Plains east may delay the spring wheat harvest during the next few days and then again in the six-to-10-day period, DTN Meteorlogix said. Harvest progress has been picking up lately after early delays due to rain.

 

Forecasts for rain in the Southern Hemisphere continue to be seen as bearish for the markets, as Australia and Argentina need rain in wheat areas. Light rains are expected in Australia's west and central growing belt during the next three to five days, and the east should see moderate rains, Meteorlogix said.

 

Argentina has a chance for showers through eastern and northern Buenos Aires and southern Santa Fe on Wednesday. Only very light showers are seen elsewhere in the region.

 

The wheat markets could find some technical support after sell-offs Monday and Tuesday, an analyst said. One sign wheat is "fast approaching oversold conditions" is that the markets did not sink as much during Tuesday's day session as they did overnight Tuesday, according to a market comment from MF Global's Kansas City Board of Trade desk.

 

"Until rain in Australia and/or Argentina is actually in the rain gauges, we expect further breaks to be limited," the comment said.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at Tuesday's low of US$8.35, a technical analyst said. The bulls' next upside price objective is to push and close December futures prices above psychological resistance at US$9.00 a bushel, he said.

 

First resistance is seen at Tuesday's high of US$8.69 1/4 and then at US$8.78. First support lies at US$8.40 and then at US$8.35.

 

CBOT December wheat spiked to a high of US$9.59 1/2 last Thursday and has been selling off since. If the contract slips below the area around US$8.40-US$8.45, "it's a pretty clear run to US$7.71," according to FuturesTechs.