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NEAR-TERM MARKET FUNDAMENTALS: Traders say that the wheat market is participating in a broad sell off which is tied to economic concerns. These concerns pushed the S&P to new lows on Friday and the index extended its lows overnight. This has caused a resumption of the flight of capital to the US dollar which has the March dollar index at the highest levels since late November. This in turn is a major concern to many wheat traders as US wheat is very sensitive to price competition from the Black Sea Region and Australia at present and the higher dollar extends the price disadvantage of US supplies in many markets. Prices were lower for Russian wheat last week as farmers sold ahead of the 2009 planting season. Conditions for the winter wheat crop in neighboring Ukraine are said to be mostly good. Traders indicate that continued dryness in the central and southern Plains of the US are a growing concern, but that problems in financial markets outweigh that factor for now. The forecast remains dry for this area. The Commitments of Traders Report for the week ending February 24th showed index funds as very small net sellers. However, trend following funds were net sellers of 2,901 contracts to take their net short position back to 37,240. This is near the all-time high net short position of over 40,000 contracts by trend followers in the wheat market. Deliveries against the March wheat contract were 3,726 contracts.
CASH NEWS AND TENDERS: Bangladesh is in the market for a total of 170,000 tonnes on two tenders.
WEATHER: Dry conditions continued in the southern Plains over the weekend with more of the same expected to start the week.
TODAY’S GUIDANCE: Trend-following funds appear poised to take their net short position to a new record high level in wheat, and that may be our number one directional indictor. Longer term support comes from the declining world production numbers in wheat for 2009/10 as well as continued strength in terms of export sales. However, old crop supplies are ample and a big harvest is just a few months away in the Northern Hemisphere. This, coupled with the continued slide in the stock market and other grain markets as well as the strength in the dollar suggests that wheat may test its December lows. Next support is at 503 to 504 in the May contract. Resistance is near 532 and 535 1/2.
