Morning Futures Roundup

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Bearish Fundamentals Keep Wheat Prices on the Defensive

   Fundamentals
Wheat prices have failed in their attempted to rebound, with short-covering buying tied to rallies in other "feed" competitors such as Corn and Soybean Meal, stymied by bearish fundamentals for the market. Here in the U.S., the winter wheat crop is progressing nicely, with the USDA rating the crop at 64% good/excellent, vs. only 34% at this time last year. Now that we have entered the month of May, many traders may start to take any "freeze" weather premium out of prices, as warmer weather moves into the Winter Wheat Belt. Globally, the world is still awash in Wheat, and supplies are expected to be ample to meet demand this year. However, for the 2012-13 season there are some concerns that global Wheat production will decline, as cold weather in the major Wheat growing areas of Europe this winter has lowered analysts' potential production estimates. The International Grains Council has lowered its estimate for 2012-13 Wheat production to 676 million metric tons (mmt), which is down from its earlier forecast of 681 mmt. However, it has been Wheat's use as a "feed" grain that has kept prices closely tied to that of Corn, as tight supplies and high prices made Wheat competitive as a feed grain this past year. With U.S. Corn production predicted to be a record, it may be difficult for Wheat prices to sustain any major rally attempt should Corn prices decline this coming year. In the near-term, historic trends normally point to lower Wheat prices as we move into the summer months, as harvest pressure hedge selling can set the tone for the market -- at least until fall planting begins.

   Technical Notes
Looking at the daily chart for July Wheat, we notice prices trading in a relatively narrow $1 price range since November of last year. During this time, we have seen the range begin to tighten, with prices making lower highs and lower lows along the way. Prices have continued to test the 100-day moving average, but have had little success moving above this key indicator. The 14-day RSI is weak, with a current reading of 37.44. The recent high of 655.50 is acting as strong resistance, as this was the daily high for three consecutive days earlier last week. Support is seen at 590.00.

  
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