October 17, 2008

 

US Wheat Outlook on Friday: Seen firmer on short-covering, bounce

 

 

U.S. wheat futures are poised to start Friday's day session firmer on short-covering and in a technical rebound from recent losses, with traders continuing to watch outside markets.

 

Chicago Board of Trade December wheat is called to open 3-to-5 cents per bushel higher. In overnight electronic trading, CBOT December wheat jumped 7 3/4 cents to US$5.63.

 

Wheat is in an oversold condition and due for a bounce after sell-offs tied to losses in outside markets, an analyst said. Equities, which continue to set the tone for the grains, are "dancing all around," a broker said.

 

Speculative funds remain net short in CBOT wheat. Some position-squaring ahead of the weekend is expected, a trader said.

 

U.S. wheat closed slightly lower Thursday, but the stock market rallied after the grains closed. The markets saw "some attempt at a recovery" overnight, but CBOT December wheat topped out at US$5.71 1/4, FuturesTechs said in a market comment.

 

"It is Friday, so there's a chance some shorts will cover, but overall the market is still bearish and the best bet is to wait for selling opportunities," FuturesTechs said.

 

The next downside price objective for the bears is pushing and closing CBOT December wheat below major psychological support at US$5.00, a technical analyst said. Bulls' next upside price objective is to push and close the contract above major psychological resistance at US$6.00, he said.

 

First resistance is seen at Thursday's high of US$5.61 1/2 and then at US$5.80. First support lies at US$5.50 and then at Thursday's low of US$5.43.

 

Concerns about crop losses in the Southern Hemisphere continue to provide some background support for the wheat, a trader said. However, fundamental factors are "completely overshadowed" by activity in the financial and crude oil markets, he said.

 

Despite an exceptionally good crop in northern New South Wales, Australian wheat production this year won't match earlier forecasts of 20 million to 22 million metric tonnes, analysts said. Weighed down by poor harvests in South Australia, the southeast and elsewhere, national production may only reach 19 million metric tonnes in 2008, they said.

 

Australia, which is traditionally a major exporter on the world market, feels the need to reclaim a spot on the world market after two years of poor production, a trader said. Drought has slashed Australia's output and export potential for the past two years.

 

There is some potential for an upper level ridge to form over central Australia during the middle of next week before shifting into the southeast later in the week, DTN Meteorlogix said in a forecast. The ridge means that the dry weather pattern will likely continue for South Australia, Victoria and southern New South Wales, the private weather firm said.

 

Weekly U.S. wheat export sales of 435,600 tonnes were toward the low end of trade estimates, which ranged from 400,000 to 600,000. Top buyers for the week included Iran, which took 66,800 tonnes, and Mexico, which bought 60,800 tonnes.

 

There were strong export sales for corn and soybeans, a trader said. Gains in the neighboring CBOT corn and soy markets could help lift wheat higher, he said.