October 6, 2008

 

US Wheat Outlook on Monday: Seen down hard on global economic woes

 

 

Sell-offs in outside markets and strength in the U.S. dollar are expected to drive U.S. wheat futures sharply lower Monday amid fears about the health of the global economy.

 

Chicago Board of Trade December wheat is called to open 25 to 30 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 30 3/4 cents to US$6.09 1/2.

 

U.S. commodities in general are weighed down by the firm dollar and "by the growing concern that the global economy is heading into something more serious than a modest recession," said Dennis Garman, publisher of The Gartman Letter. "Demand for anything and everything is now weakening and prices have to reflect that harsh reality. At the moment, it matters not what type of commodity one is dealing with, all are heading lower."

 

European stocks slumped Monday amid fears of a global recession following a muted reaction to the passing of a US$700 billion rescue plan in the U.S. on Friday. The euro slipped to a fresh 14-month low against the dollar as concerns surrounding Europe's banking sector intensified.

 

A strong dollar is seen as bearish for wheat because it gives foreign countries less buying power. A sharp setback in crude oil adds to the bearish tone in the grains because funds often trade in a basket of commodities and because corn is linked to energy markets through ethanol, analysts said.

 

Fundamental factors for wheat should remain in the back row, with traders directing their attention toward outside influences, a broker said. Expectations that the world will produce a record-breaking wheat crop in 2008-09 continue to hang over the market.

 

"It's the macro-economic story" that is driving the wheat markets, a CBOT floor trader said. "Crude oil is getting hit. The dollar is very firm."

 

Grain traders who follow fundamentals will point to the U.S. Department of Agriculture crop reports due out Friday as the focal point for the market, Gartman said. The reports would be the focus this week "were the markets not in the disarray," he said

 

"However, the markets are in disarray, and liquidation and margin calls trump all other concerns" he said. "The margin clerks are in control. Nothing else is important, for they hold the trump cards and they are playing them aggressively."

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below psychological support at US$6.00, a technical analyst said. Bulls' next upside price objective is to push and close December futures prices above major psychological resistance at US$7.00, he said.

 

First resistance is seen at US$6.50 and then at Friday's high of US$6.54 1/4. First support lies at last week's low of US$6.31 and then at US$6.25.
   

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