September 16, 2008


US Wheat Outlook on Tuesday: 8-10 cents down on pullback, outside pressure



U.S. wheat futures are expected to start Tuesday's day session weaker on spillover pressure and as the markets give back Monday's gains.


Chicago Board of Trade December wheat is called to open 8 to 10 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 7 1/2 cents to US$7.19 1/2.


Pressure from weakness in crude oil and jitters about the stability of the U.S. financial sector are hanging over the grains, "as traders caught in a cash flow crunch are forced to liquidate any and all assets," an analyst said. Fundamentals for wheat remain bearish amid expectations that expanded world plantings will lead to record world production in 2008-09.


The U.S. Department of Agriculture last week raised its forecast for global production to 676.3 million tonnes, up 65 million from last year, although there are concerns about dryness in Australia and Argentina. The Australian Bureau of Agricultural & Resource Economics, or Abare, lowered its production estimate to 22.5 million tonnes, down from 23.7 million in June but well up from 13 million tonnes last year.


If Abare's projections are realized, the availability of Australian wheat on world markets will increase sharply after two years of drought, weighing on global prices, analysts said. As per the latest estimates, the country's wheat exports may more than double next year.


Still, fundamentals in the grain markets will likely a backseat to technical factors and financial woes, an analyst said. Wheat could hold up better than the row crops, which were also lower overnight, as the markets are oversold after a steep slide during the past three weeks, a trader said.


Wheat rose Monday on technical buying, despite losses in neighboring and outside markets, but the technical trend remains down after a spike high Aug. 21, research marketing firm Allendale said in a note to clients. "Monday's wheat trade reacted mainly to oversold technical conditions by trading on a positive note, but in less than inspired conviction," the firm said.


Short-term resistance for CBOT December wheat is at US$7.25 and then US$7.46, Allendale said. Key support is solid at US$7.00. If that level is breeched, a move to US$6.75 is anticipated, the firm said.


"The wheat bears still have the solid technical advantage," a technical analyst said. "Traders will continue to focus on the key 'outside markets' - the U.S. dollar and crude oil prices."


In other news, the USDA in its weekly crop progress report said U.S. winter wheat planting was 11% complete, near 12% last year but below the average of 16%. The report is "neutral" for the markets, Allendale said.

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