October 10, 2008

 

US Wheat Outlook on Friday: Down sharply on global financial turmoil

 

 

Sinking global financial markets are expected to drag U.S. wheat futures sharply lower at the start of Friday's day session, with a government crop report providing little to excite traders.

 

Chicago Board of Trade December wheat is called to open 25 to 30 cents per bushel lower. In overnight electronic trading, CBOT December wheat dropped 23 cents to US$5.81 3/4.

 

The grain markets came under pressure overnight as stock markets around the globe fell due to locked-up credit markets and a lack of faith in the financial system. Heavy losses expected in CBOT corn and soybeans should add pressure to wheat, traders said.

 

Wheat will "focus on the rest of the floor and the outsides," a CBOT floor trader said.

 

"Until we get stability in the financial markets, we're going to continue to have investors pull their money and convert their positions into cash," Farm Futures analyst Arlan Suderman said.

 

The U.S. Department of Agriculture's supply/demand report raised the governments estimate for 2008-09 wheat carryout to 601 million bushels from 574 million. Many analysts had expected to see a decrease in carryout due to strong feed use and export demand.

 

However, "increased production more than offsets higher projected feed and residual use," the USDA said. Production was raised 37 million bushels based on the latest crop estimate from the USDA's small grains report, issued in late September, the agency said.

 

The increase in stocks looks fundamentally bearish for wheat, one analyst said. Overall, though, the report offered "nothing new" for the market because traders already know the world has a lot of wheat to go around, a CBOT trader said.

 

The world is expected to produce more wheat in 2008-09 than ever before after producers worldwide expanded seedings to take advantage of high prices. The USDA said global wheat production is projected at a record 680.2 million tonnes, up 3.9 million from September.

 

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

 

First resistance is seen at Thursday's high of US$6.21 1/2 and then at this week's high of US$6.33 1/4. First support lies at Thursday's low of US$6.00 and then at this week's low of US$5.86 1/4.