November 3, 2008

 

US Wheat Outlook on Monday: Seen up on weak dollar, technical bounce

 

 

Follow-through buying from the overnight session and weakness in the U.S. dollar should support U.S. wheat futures at the start of Monday's day session.

 

Benchmark Chicago Board of Trade December wheat is called to open 5 cents to 10 cents per bushel higher. In overnight electronic trading, CBOT December wheat jumped 10 3/4 cents to US$5.47.

 

Wheat is in a technically oversold condition and due for a rebound after recent losses, said Larry Glenn, broker and analyst at Frontier Ag. The markets' declines for October were steep, with CBOT December wheat losing US$1.43 3/4, or 21%.

 

"Maybe we'll stabilize all the grains and catch a little bit of bounceback this week in the wheat market," Glenn said. "We've taken a huge hit in there. We're way oversold on the charts..., but I don't see a lot of stuff out there to propel it very far."

 

Weakness in the U.S. dollar is supportive for wheat, as it gives importers using other currencies more buying power. However, losses in crude oil could weigh on the grains, as funds often trade in a basket of commodities, traders said. Crude oil is linked to the grains because corn is used to make ethanol and soy is used in biofuels.

 

CBOT December wheat Friday closed slightly lower on light profit-taking ahead of the weekend, as prices consolidated around the 87% retracement level of the 2007-2008-rally crossing at US$5.36 3/4, a technical analyst said. The close, near the high-range, "sets the stage for a steady to higher opening on Monday," he said.

 

Closes above the 20-day moving average, crossing at around US$5.58, would confirm that a short-term bottom has been posted, the technical analyst said. If CBOT December wheat renews this fall's decline, the May 2007 low crossing at US$4.90 is the next downside target, he said.

 

Forecasts for record world wheat production in 2008-09 remain fundamentally bearish but are already factored into the markets, analysts said. Looking at technical charts, it appears the "worst has been seen" in the grain markets, said Dennis Gartman, publisher of the Gartman Letter.

 

"It is early yet, and we can be proven wrong, but even wheat, which is the most bearish of the grains, appears to have broken its downtrend," Gartman said.

 

The U.S. Department of Agriculture is due to issue its weekly crop progress report at 4 p.m. EST Monday. The U.S. winter wheat crop is off to a good start so far, Glenn said.

 

Hard red winter wheat in the U.S. central and southern Plains should see dry, warm weather this week, which will favor planting and early growth, DTN Meteorlogix said. There are "no significant concerns" for the crop, the private weather firm said.