November 13, 2008


US Wheat Outlook on Thursday: Seen 3-5 cents down; two-sided trade expected



U.S. wheat futures are expected to start weaker Thursday amid follow-through selling from the overnight session and pressure from weakness in other markets, although short-covering could help underpin prices.


Chicago Board of Trade December wheat is called to open 3 to 5 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 7 cents to US$5.26.


Wheat slipped overnight, along with CBOT corn and soybeans, after closing higher Wednesday in the face of losses in the neighboring and outside markets. Losses on Thursday in corn and soybeans and in the stock market could weigh on wheat during the day session, an analyst said.


Trading should be two-sided, although price swings are expected to be less extreme than Wednesday, a CBOT floor trader said. CBOT December wheat Wednesday surged as high as US$5.52 before closing at US$5.33.


"Wheat is called lower on economic fears, but short-covering could provide strength," Midwest Market Solutions said.


Wheat's gains Wednesday were "termed a short-covering rally," but total open interest at the CBOT rose about 7,300 contracts, an analyst said. That suggests "at least some new buying was starting to come into the market," said Bryce Knorr, senior editor of Farm Futures.


Traders covered short positions Wednesday after being unable to achieve technical objectives on the downside, analysts said. Bears would like to push CBOT December wheat below solid support around US$5, they said.


"Wheat could give back some of Wednesday's rally on the open this morning," Knorr said. "Prices surged yesterday on little news other than emotion, but closed well off their highs. Funds remain with a short position in Chicago, helping provide the spark for rallies."


Despite Wednesday's gains, wheat bears have the overall near-term technical advantage, a technical analyst said. However, it would not be surprising "to see some more short covering and a modest price recovery in the near term," he said.


The next downside price objective for the bears is pushing and closing CBOT December wheat below solid technical support at the October low of US$4.96 1/2, the technical analyst said. Bulls' next upside price objective is to push and close December futures prices above solid technical resistance at last week's high of US$5.87 3/4, he said.


First resistance is seen at Wednesday's high of US$5.55 and then at US$5.75. First support lies at US$5.20 and then at Wednesday's low of US$5.08 1/2 and then at US$5.00.


The U.S. Department of Agriculture will issue its weekly export sales report at 8:30 a.m. EST Friday, one day later than usual because of the Veterans Day holiday. In other export news, Japan bought 100,000 metric tonnes of U.S. wheat for delivery Dec. 21 to Jan. 31, which was expected, a trader said.


Elsewhere, there is some chatter that Australia's wheat production could dip as low as 18 million tonnes due to a lack of rain. Recent estimates have put the crop at around 20 million tonnes.


After domestic demand of about 7 million tonnes a year is met, the balance of Australia's crop is usually available for export, allowing Australian output to have a major impact on global prices. Each bushel of production Australia loses is one bushel less available on the world market, a CBOT trader said.

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