November 22, 2008


US Wheat Review on Friday: Slides on spillover pressure from corn



U.S. wheat futures sank Friday on pressure from a slide in the neighboring corn market, with nearby Chicago Board of Trade December wheat ending below US$5 per bushel.


CBOT December wheat finished 12 3/4 cents lower at US$4.99, down 55 1/4 cents on the week. Kansas City Board of Trade December wheat fell 14 3/4 cents to US$5.33 1/2, down 59 3/4 cents on the week. Minneapolis Grain Exchange December wheat shed 13 1/2 cents to end at US$5.86 1/2, down 71 cents on the week.


CBOT December wheat had been looking at US$5 as psychological support but fell through that level as corn tumbled. Corn and wheat are linked because funds often trade in a basket of commodities and both are used for animal feed.


Although wheat has been trading sideways, Friday's decline doesn't confirm the market has broken out of its trading range, said John Kleist, broker and analyst for Allendale. Wheat has been trying to build a demand base around US$5.


"I think that taking out 5 was purely a result of the corn crash," Kleist said. "As a consequence of that, I'm not convinced that the wheat market still isn't" consolidating in a value area, he said.


CBOT March wheat hit a new contract low and settled at a "bearish weekly low close" of US$5.18, a technical analyst said. The contract's next downside target is major psychological support at US$5, he said. Below that, the next support level is seen at US$4.50.



Kansas City Board of Trade


There was "certainly spillover weakness" on KCBT wheat from CBOT corn, a KCBT floor trader said. The market tried to firm up a bit during the session but slid "once corn really fell apart," he said.


KCBT March wheat closed below a support level at US$5.50, a trader said. The contract's session low of US$5.48 1/4 was hit on the screen.


Stocks were higher as the grains trading session ended. Still, wheat felt "no help really from the equity markets" as the Dow Jones Industrial Average was "kind of bouncing around," the KCBT trader said.



Minneapolis Grain Exchange


MGE December wheat closed near its session low of US$5.85. MGE March wheat ended down 12 1/4 cents at US$5.92, slightly above its session low of US$5.90 3/4.


Traders said they expected follow-through weakness after the weak closes. Before the opening, some market participants had expected to see some support from pre-weekend short covering.


"We had kind of a choppy week," a trader said. The weak close indicates that "this thing has more downside to it," he said.


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