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Wheat prices caught in near-term technical downtrend
By Tom Polansek
Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)--U.S. wheat futures are in a technical downtrend after
setting new all-time highs earlier this fall, with solid support for benchmark
Chicago Board of Trade December wheat lying nearly 50 cents below the current
price, several analysts said Thursday.
Psychological support for CBOT December wheat lies around $7.50 per bushel,
the previous record high for a nearby contract set in March 1996, said Dale
Durchholz, analyst with AgriVisor in Bloomington, Ill. The contract last month
rallied to a high of $9.61 3/4 amid a bullish storyline of shrinking world
supplies and booming demand and for U.S. wheat.
But CBOT December wheat closed limit down, 30 cents lower, in the last two
day sessions after Russia quashed rumors that it planned to hike its wheat
export tariff, a move that could have sent even more business to the U.S.
Russia's announcement was the "kiss of death" for wheat futures in the near
term, one analyst said.
CBOT December extended its losses Thursday and ended down 9 cents at $8.02.
As of the close of markets, the contract was down 53 1/2 cents for the week.
"With the breakdown we've had this week, the party in wheat is over,"
The first two obvious areas of support for CBOT December wheat are at $7.50
and then $7.17, Durchholz said. Although $7.50 was officially wheat's record
high price prior to this autumn, some wheat industry members consider a move to
$7.17 in April 1996 to be the record because the March 1996 price was achieved
in thin trade as a contract was expiring.
Farm Futures Analyst Arlan Suderman agreed $7.50 was the next main level of
psychological support but said a downside gap between $7.71 and $7.60 could
also offer some support. On the upside, there is resistance at $8.25 to $8.41,
Indeed, if the markets don't uncover "anymore excitement in the world" in
terms of unexpected supply problems or strong U.S. export sales, CBOT December
wheat could work its way down to $7.50 and then eventually $7, said Jerry
Gidel, analyst with North American Risk Management Services. There should be
reactionary selling if prices bounce back up to $8.30 to $8.50, he said.
"The market has priced in much of the world's concerns," Gidel said. "The
whole emotional enthusiasm of the market has really waned."
At the Kansas City Board of Trade, the near-term focus for December is on
retesting the downside around $7.80 to $7.90, according to a market comment
from the KCBT office of brokerage firm MF Global.
KCBT December wheat on Thursday closed down 4 3/4 cents at $8.25. The
contract was down 44 cents on the week so far.
"The market is resetting, and needs to establish a new low end of a trade
range," MF Global said Wednesday after KCBT December wheat ended limit down.
"The market can tend to overshoot on the way down, so we would not be surprised
to see (KCBT December wheat) all the way to $7.50 as the seasonal charts
indicate wheat will be under pressure until the first quarter of next year."
For the market to rally again, MF Global said, three factors need to be in
place: continued weakness of the U.S. dollar, renewed business from North
African importers, and "another round of harvest horror stories out of
Australia need to be uncovered."
Australia, typically a major world exporter, has seen its wheat crop ravaged
by a severe drought this year, but analysts said significant crop losses Down
Under are already priced into the markets. Until the three factors come
together, MF Global said, the trade "is all about the power of momentum,
currently pointing down."
Longer-term at the CBOT, December wheat's slump below $8.10 Thursday caused
"considerable chart damage" that provides renewed support for a technical
target of $7 in the longer term, Suderman said.
"It would likely take bullish export news to turn things around prior to
reaching that objective," Suderman said of the $7 target. "There will likely be
bounces along the way, but the path of least resistance is clearly lower"
unless panic buying resurfaces amid renewed fears that export demand will
exceed available supplies.
The long-term fundamental outlook for wheat in general is considered bearish
because producers worldwide are seeding more wheat this year in response to the
all-time high prices, analysts said. The International Grains Council on
Thursday forecast a 3% rise in 2008-09 world wheat plantings to 220 million
hectares. Significant increases are likely in North America, the European Union
and the Commonwealth of Independent States, according to the IGC. Growers in
Ontario are thought to have planted a record 1.5 million acres of winter wheat,
up from about 500,000 acres last year, a spokesman for the Ontario Wheat
Producer's Marketing Board said.
In the U.S., the recently-planted winter wheat crop is off to a solid start,
agronomists and wheat industry members said this week. The U.S. Department of
Agriculture is not expected to release a national crop rating until Monday, but
National Agricultural Statistics Service field offices in several key
wheat-producing states said most of the crop is in good to fair condition.
Durchholz said there would have to be a significant weather problem with the
newly planted crop to get the wheat bull market back in gear. Extreme winter
kill in the U.S. or Ukraine, for example, could help ignite a new rally, he
Moving forward, traders agreed activity in the wheat markets will remain
highly volatile. Since the beginning of October, the markets have surged limit
up or limit down during eight sessions.
-By Tom Polansek, Dow Jones Newswires; 312-341-5780;
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Copyright (c) 2007 Dow Jones & Company, Inc.
By Tom Polansek Of DOW JONES NEWSWIRES