December 18, 2008

 

US Wheat Outlook on Thursday: Continued short-covering rally expected

 

 

U.S. wheat futures are expected to extend their rally Thursday, supported by weakness in the U.S. dollar and continued short-covering.

 

Chicago Board of Trade March wheat is called to open 5 to 7 cents per bushel higher. In overnight electronic trading, CBOT March wheat added 8 cents to US$5.65 1/2. Kansas City March wheat added 13 1/4 cents to US$5.78 1/4 and Minneapolis Grain Exchange wheat added 11 3/4 cents to US$6.19.

 

Speculative fund buying Wednesday was estimated between 4,000 and 5,000 lots, bringing their total outstanding short position to around 20,000 contracts.

 

"The Kansas City March chart still looks positive settling on our highs," said Dave Lehl, an analyst at Benson Quinn Commodities. "The dollar chart still looks negative and there is a lot more of winter left for the trade to kill the crop every time it gets cold."

 

If the nearby hard red winter wheat contract breaks above US$5.80, Lehl said he sees the trade testing US$6.00.

 

Wheat export sales totaled 262,300 metric tonnes from the week ended Dec. 11, according to data released Thursday by the U.S. Department of Agriculture. Of that, 262,100 was for 2008-09 crop.

 

CBOT March wheat gained in Wednesday's trading session and closed near the day's high, but bears maintain "the overall near-term technical advantage," a market technician said, noting "prices are still in a nine-month-old downtrend on the daily bar chart.

 

Wheat bears are aiming close below US$5, a major psychological support, he said, marking first support at US$5.50, then Wednesday's low of US$5.40 1/2.

 

As wheat bulls gun to pierce solid technical resistance at US$5.78, first resistance lies at Wednesday's high of US$5.61 and then US$5.66, the technician said.

 

Drought-stressed wheat is most susceptible to winter wheat kill, said Jim Shroyer, a Kanasas State Extension agronomist.

 

While most of the Kansas wheat crop should "be fairly well insulated from the bitter cold," Shroyer said about three southwestern counties exhibit the conditions necessary for winter kill to occur: lack of soil moisture; the degree of hardening the plant has achieved for winter dormancy; and the soil temperature at one-inch deep.

 

"The crop is most winter-hardy from now until late January," Shroyer said. "I think the wheat was prepared for this cold snap."

 

The southern plains are experiencing "mostly favorable crop conditions," but dry conditions across West Texas are causing slow growth concerns "with major concerns through central Texas," DTN Meteorlogix said.

 

Mostly dry conditions are speeding the harvest of Argentina's drought-stressed crop, the private weather forecasting firm said.

 

Argentina cut its forecast for 2008-09 wheat production to 9 million metric tonnes Wednesday, down from the 10.1 million tonnes forecast last month. Drought and decreased planting area is expected to cause a sharp drop from the 16 million tonnes grown last season. To date, farmers have harvested 53% of the wheat crop, the Secretariat said in its monthly crop report.

 

In southeastern Australia, the harvest of winter grains including wheat remains stalled across wide areas and continues in a stop-start fashion in others due to rainfall, storage provider GrainCorp Ltd. (GNC.AU) reported Thursday.