October 14, 2008

 

US Wheat Outlook on Tuesday: Up 10-15 cents, poised to extend rebound

 

 

Follow-through buying and strength in outside markets are expected to lift U.S. wheat futures higher at the start of Tuesday's day session.

 

Chicago Board of Trade December wheat is called to open 10 to 15 cents per bushel higher. In overnight electronic trading, CBOT December wheat closed up 13 3/4 cents at US$6.02 1/4.

 

Wheat should extend Monday's rebound from recent losses amid continued strength in outside and financial markets, a CBOT trader said. U.S. government officials said Tuesday that they would take stakes in nine large financial institutions in an effort to help revive the banking sector and fight the global credit crunch.

 

Weakness in the dollar also lends support to wheat, as a softer greenback encourages export demand, they said. It looks as though U.S. wheat has found economic value at current price levels, as Egypt booked some U.S. wheat during the weekend, an analyst said.

 

Still, it doesn't seem that there is new money coming into the wheat markets, with gains Monday linked to short-covering, a trader said. Fundamentals for the markets remain bearish amid "a global surplus of wheat around the world that not even feed substitution demand can erode," said Shawn Hackett, president of Hackett Financial Advisors.

 

Looking at technical charts, wheat bears still have the solid near-term advantage, a technical analyst said. Prices are still in a six-month-old downtrend on the daily bar chart, he said.

 

The next downside price objective for the bears is pushing and closing prices below solid technical support at US$5.50, the analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at US$6.21 1/2, he said.

 

First resistance is seen at Monday's high of US$5.95 and then at US$6.00. First support lies at US$5.75 and then at Monday's low of US$5.65 1/4.

 

"Until the well-defined downtrend line can be broken, expect rallies to be very short-lived," Hackett said in a note to clients. "An oversold rally can happen at any time."

 

The U.S. Department of Agriculture is due to issue its weekly crop progress report at 4 p.m. EDT, a day later than usual because of the Columbus Day holiday Monday. U.S. winter wheat planting is off to a good start thanks to moisture in the Plains, a trader said.

 

Traders continue to have concerns about crop losses in the Southern Hemisphere owing to dry weather. Australia and Argentina are major exporters on the world market.

 

In Australia, dry conditions in South Australia and western Victoria look to continue, DTN Meteorlogix said. Showers through New South Wales and Queensland during the weekend and early this week may favor filling wheat, but it could be unfavorable for maturing wheat and the early harvest in the north, the private weather firm said.