October 8, 2008

 

US Wheat Outlook on Wednesday: Seen lower; traders monitor outside markets

 

 

U.S. wheat futures are called to start lower Wednesday, with activity in outside markets expected to dominate trading.

 

Benchmark Chicago Board of Trade December wheat is seen opening 5 to 7 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 10 1/4 cents to US$5.93.

 

The grains will take their cue from outside and financial markets after the U.S. Federal Reserve, European Central Bank and other major central banks announced coordinated cuts in target interest rates. The Fed's rate-setting Federal Open Market Committee voted unanimously to cut its target federal funds rate 50 basis points to 1.5%.

 

Equities found initial support from the coordinated rate cut but were struggling to get a lasting rise from the moves, a trader said. The Dow Jones Industrial Average was more than 100 points lower shortly after the market opened. Fear about the possibility for another slide in financial markets could keep potential longs on the sidelines in the CBOT grain trade, said Shawn McCambridge, analyst at Prudential Bache.

 

"Especially this morning, I don't think the fundamentals really matter much," McCambridge said. The direction in wheat "is really going to depend on the activity before the opening" in the outside markets, he said.

 

Weakness in the U.S. dollar should help provide support for wheat, as it makes grains more affordable for foreign buyer, a trader said. A setback in crude oil is seen as a bearish influence, as funds often trade in a basket of commodities, he said.

 

Wheat rose Tuesday on short-covering as the markets rebounded from recent selloffs. The markets are still "short-term oversold and due for more of an upside corrective bounce very soon," a technical analyst said.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at US$5.50, the analyst said. Bulls' next upside price objective is to push and close December futures prices above solid technical resistance at US$6.50, he said.

 

First resistance is seen at Tuesday's high of US$6.15 3/4 and then at US$6.25. First support lies at Tuesday's low of US$5.94 and then at this week's low of US$5.88 1/2.

 

There are lingering concerns about the condition of Australia's wheat crop, but they are not serious enough to divert attention from the outside markets, an analyst said. The crop has struggled with dryness, and there is a chance for frost in some areas, DTN Meteorlogix said in a forecast.

 

However, the chance for a damaging freeze decreases as each day passes, Meteorlogix said. The highest risk to crops in South Australia and northwest Victoria continues to be from dry conditions.

 

Wheat in the northern half of Australia's Victoria state could fail without heavy rainfall in coming weeks, an agronomist with the state's Department of Primary Industries said. Crops in the area have been stressed by hot and windy weather, and need more moisture to cross the finish line, she said.

 

In Argentina, frost and light freeze conditions through southeast Buenos Aires Wednesday morning could be damaging to any flowering wheat in the area, according to Meteorlogix. The primary risk to the crop is still dryness, especially in western growing areas, with the next chance for rainfall seen during the weekend, the firm said.