November 28, 2008


US Wheat Outlook on Friday: Seen lower amid lack of bullish news



Spillover pressure and an absence of bullish news should drag U.S. wheat futures lower Friday, with trading expected to be choppy and thin following the Thanksgiving holiday.


Chicago Board of Trade March wheat is called to open 1 to 3 cents per bushel lower. In overnight electronic trading, CBOT March wheat slipped 2 1/4 cents to US$5.51 3/4.


The markets should drift lower amid a lack of fresh news and with many traders absent following the holiday Thursday, an analyst said. Weakness in crude oil and strength in the U.S. dollar help set a bearish tone for the grains, he said.


Crude oil is linked to the grains because funds often trade in a basket of commodities and because ethanol is made from corn. A stronger dollar gives foreign countries less buying power to import commodities like wheat.


"I don't see enough stuff out there to help the market," said Tom Leffler, owner of Leffler Commodities.


Weekly U.S. wheat export sales of 438,600 tonnes were within trade estimates of 300,000 to 500,000 tonnes. The sales, all for delivery in 2008-09, were down 14% from the previous week but up 11% from the prior four-week average, according to the U.S. Department of Agriculture.


Deliveries against the CBOT December wheat futures contract on first notice day Friday were 3,958 contracts, which was within expectations. Traders and analysts had predicted deliveries would be 1,000 to 4,500 contracts.


Although deliveries were expected to be heavy, the large number could weigh on the market, Leffler said. The heavy deliveries could reinforce ideas that there are ample supplies available.


On Thursday, Egypt's state-owned wheat buyer, the General Authority for Supply Commodities, bought 55,000 metric tonnes of U.S. soft red winter wheat in a tender. The small amount won't do much to support the markets, a trader said.


"I think it's a little too small," Leffler said about GASC's purchase.


In other news, Australia is seeing up to 1 million tonnes of its milling wheat downgraded to animal feed after rains caused damage, industry members said. The downgrade is expected to tighten high quality milling wheat markets both in Australia and overseas, potentially pressuring oversupplied feed grain markets lower.


"Rain and thunderstorms through New South Wales and Queensland will likely mean further harvest delays and possible quality concerns for wheat," private weather firm DTN Meteorlogix said in a forecast.


In the U.S., showers in north Texas on Friday will help ease stress to developing wheat, but more rain will still be needed after recent dryness, Meteorlogix said. Otherwise, conditions are "favorable" in the Plains for pre-winter growth of wheat, the firm said.


The next downside price objective for the bears is pushing and closing CBOT March wheat below solid technical support at the contract low of US$5.15 1/4, 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$6.08, he said.


First resistance is seen at Wednesday's high of US$5.64 3/4 and then at this week's high of US$5.78. First support lies at Wednesday's low of US$5.43 1/2 and then at US$5.40.

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