December 31, 2008


US Wheat Outlook on Wednesday: 10-12 cents lower on spillover pressure



U.S. wheat futures are poised to start weaker Wednesday on profit-taking and spillover pressure from other markets, although short-covering could provide some support.


Chicago Board of Trade March wheat is called to open down 10 to 12 cents per bushel. In overnight electronic trading, CBOT March wheat sank 12 3/4 cents to US$5.92.


Expected losses in the neighboring CBOT corn and soybean markets should weigh on wheat in early activity, analysts said. The markets could bounce after falling overnight if soybeans and corn find support from ongoing concerns about dry weather in South America, a CBOT floor trader said. However, it would be a struggle for wheat to make too big of a move to the upside because it is already at the upper end of its recent trading range, he said.


There are "no significant cold weather threats during the next seven days" for hard red winter wheat on the U.S. central and southern Plains, DTN Meteorlogix said in a forecast. No damaging cold is expected in soft red winter wheat areas of the Midwest for the next week either, the private weather firm said.


"Wheat was unable to hold any gains overnight, lacking support from the outside markets," Farm Futures said in a market comment. "Look for wheat to follow the tone of the other markets today as well, although year-end short covering should provide at least modest support."


Non-commercial speculative funds were net short 23,444 contracts in CBOT wheat as of Dec. 22, the Commodity Futures Trading Commission said in its latest supplemental Commitments of Trader report. Position-squaring on Tuesday helped support wheat, traders said.


CBOT March wheat has already climbed more than US$1 this month in a recovery. If the market extends its rally, an Oct. 6 gap crossing at US$6.60 is the next upside target for CBOT March wheat, a technical analyst said. Closes below the 20-day moving average crossing around US$5.39 3/4 would temper the near-term friendly outlook in the market, he said.


Strength in the U.S. dollar is seen as bearish for the grains because it gives foreign countries less buying power, a trader said. Demand for U.S. wheat has been "disappointing" lately, as the U.S. has struggled against competition from other exporters, notably countries in the Black Sea region, an analyst said.


There is chatter in the market that Iraq purchased wheat from non-U.S. countries. There was no expectation the U.S. would win the business, a CBOT trader said.


Wheat should "continue following other markets," Country Hedging said in a note. "There is still a lack of any export business due to notions of high prices."


Trading is expected to be thin on the last day of the year. There is "a lot of air around the market, favoring wide price swings," Farm Futures said.

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