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Wheat prices caught in near-term technical downtrend

Agriculture.com Staff 02/12/2016 @ 4:31pm


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," Durchholz said.

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, he said.

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."

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