November 20, 2008
US Wheat Outlook on Thursday: Down on weak outside markets, jitters
Tumbling outside markets are expected to drag U.S. wheat futures lower at the start of Thursday's day session, although traders continue to monitor export demand.
Benchmark Chicago Board of Trade December wheat is called to open 4 to 8 cents per bushel lower. In overnight electronic trading, CBOT December wheat fell 7 3/4 cents to US$5.19 1/4, and March wheat dropped 8 cents to US$5.38 1/2.
Losses in equities should weigh on the grains, as the Dow Jones Industrial Average on Wednesday closed below 8000 for the first time in more than five and a half years, an analyst said. Traders are nervous about the volatility in the stock market and stepping back from trading commodities, he said.
A slide in crude oil prices adds to the bearish tone. Crude oil is linked to the grains because ethanol is made from corn and because funds often trade in a basket of commodities.
Wheat traders are waiting to see the results of a tender from Egypt's state-owned General Authority for Supply Commodities. GASC, a major buyer on the world wheat market, said it was tendering to buy at least 55,000 to 60,000 metric tonnes of wheat for shipment Dec. 15-31 on a free-on-board basis.
Egypt is expected to buy wheat from Europe and/or the Black Sea region, AgResource Company said in a market comment. Marginal amounts of U.S. soft red winter wheat may be purchased, the firm said.
There is a good amount of wheat business getting done, with other countries also looking to buy, an analyst said. Still, the U.S. is "getting business only from its normal customers" so far, said Bryce Knorr, senior editor at Farm Futures.
"A host of deals are being done this week, and buyers are becoming more aggressive at lower price levels," Knorr said. "At the same time, supplies of milling quality wheat are remaining tight."
Weekly U.S. wheat export sales of 511,000 tonnes for delivery in 2008-09 were up 40% from the prior four-week average and at the high end of trade expectations. Analysts had predicted sales would be 350,000 to 550,000 tonnes.
Crop problems in Australia could potentially shift some demand to the U.S. from Australia, an analyst said. The quality concerns are "bullish for milling wheat, but bearish to corn as this (Australian) wheat has potential to become competition as a feed source," Allendale said in a research note.
Drenching rain that fell on ripe crops this week in northern and central New South Wales and in southern Queensland could cause a downgrade in quality of the wheat to feed grade from hard milling grade, industry members said. Northern New South Wales and southern Queensland typically are the source of Australia's best-quality, high-protein milling wheat.
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, a technical analyst said. Bulls' next upside price objective is to push and close the contract above solid technical resistance at the November high of US$5.87 3/4, he said.
First resistance is seen at Wednesday's high of US$5.40 1/2 and then at US$5.50. First support lies at Wednesday's low of US$5.25 1/4 and then at last week's low of US$5.05 1/4 and then at US$5.00.