November 5, 2008


US Wheat Outlook on Wednesday: Seen mixed, looking to outside markets



U.S. wheat futures are poised to start Wednesday's day session mixed, with weakness in outside markets expected to temper gains in overnight trading.


In overnight electronic trading, Chicago Board of Trade December wheat rose 1 1/2 cents to US$5.74.


Weakness in outside markets, including crude oil and equities, and a firmer U.S. dollar should weigh on the grains, traders said. A strong dollar gives foreign countries less buying power to import U.S. grain.


Wheat felt a boost Tuesday from rallies in outside markets and weakness in the dollar. Traders will keep an eye on the other markets during the session, as wheat still needs spillover support to rise, an analyst said.


"You can't get away from it, like it or not," that the outside markets provide direction for the grains, an analyst said.


Wheat bulls have gained some fresh technical momentum this week after closing higher Monday and Tuesday, a technical analyst said. A CBOT trader said he had expected to see more of a sideways trade at the start of the week and that the higher closes were encouraging ideas wheat may trend upward.


The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at this week's low of US$5.32 3/4, the technical analyst said. The bulls' next upside price objective is to push and close the contract above psychological resistance at US$6.00, he said.


First resistance is seen at Tuesday's high of US$5.87 3/4 and then at US$6.00. First support lies at US$5.50 and then at this week's low of US$5.32 3/4.


Fundamentals for wheat remain bearish, as the world is expected to produce a record crop in 2008-09, an analyst said. Conditions remain mainly favorable for U.S. farmers to wrap up planting in most areas of the central and southern Plains, DTN Meteorlogix said in a forecast.


In Australia, the government commodity forecaster cut its prediction for the 2008-09 wheat crop to 19.9 million metric tonnes, down some 11% since its last update in September. A lack of rainfall across Victoria, South Australia and southern New South Wales has hurt the crop, nearly halving expected wheat output in Victoria to 1.4 million tonnes, according to the Australian Bureau of Agricultural and Resource Economics, or Abare,


The reduction was not too surprising because private estimates have put the crop below 20 million tonnes, a CBOT trader said. But Abare's estimate was the first official forecast to say farmers Down Under would produce less than 20 million tonnes, he said.


"It's not bearish," an analyst said when asked about Abare's reduced crop projection.


Annual domestic demand in Australia is about 7 million tonnes, and the rest of the crop is available for export. The U.S. Department of Agriculture last month pegged production Down Under at 21.5 million tonnes.


A slow moving trough of low pressure is expected to bring widespread rain and thunderstorms to Australia's eastern wheat areas within the next five days, Meteorlogix said. The best chance for heavier rains is in New South Wales and Queensland.


The moisture is beneficial to late-filling wheat but may slow the early wheat harvest in the north, Meteorlogix said. The "more important rain still looks to skirt the drought areas of western Victoria and South Australia," the private weather firm said.


In other news, Jordan said it was tendering to buy 150,000 metric tonnes of wheat, of any origin, on a cost and freight basis. The deadline for bids is Nov. 19, he said.