Wheat futures on the Chicago Board of Trade closed lower on Thursday in a technical setback after the recent fund-driven rally to two-month highs, traders said.
A late break in soybean futures also weighed on wheat prices, pushing the market to close near the day's lows.
"The bubble burst," one CBOT wheat trader said. March wheat closed down 8-1/4 cents at $3.37-1/4 per bushel, with deferred months down 7 to 9-1/2 cents.
Volume was estimated by the exchange at 31,334 futures and 4,517 options.
Traders said wheat futures were due for a setback after closing higher in seven of the previous eight sessions, with March rising to a new two-month high on Wednesday.
The nine-day relative strength index for the March contract stood at 81 ahead of the open, and fell to 63 by Thursday's close. Technical traders view an RSI of 70 or higher as one sign of an overbought market.
The recent run-up in wheat prices was mostly technical, traders said, driven by funds covering short positions.
Funds remain short in CBOT wheat but traders estimated they had slashed their net short position to about 20,000 to 25,000 contracts after Wednesday's close. That would be down about 50 percent from December 20, according to the latest CFTC commitments report.
Trader opinions varied widely on what funds did on Thursday. Some estimated that the funds sold 2,000 contracts, while others said funds bought up to 5,000 lots, despite the late break in prices.
Traders did note some commercial selling, reflecting a pickup in country offerings after the recent rally. Lacklustre export business added to the bearish tone. Wheat traders said the recent climb in wheat futures prices was probably keeping some potential buyers away from US wheat.
The US Department of Agriculture was scheduled to release its weekly export sales data on Friday, one day late due to the market holiday for Christmas. Traders estimated weekly sales of US wheat at 350,000 to 550,000 tonnes, down from 522,700 the previous week.
Dry conditions in the southern US Plains remained a bullish background factor. The Meteorlogix weather service said there was no significant chance for rain in the region over the next seven days.
Light precipitation was forecast in the US Midwest soft red winter wheat region, Meteorlogix said.
Cash basis bids for SRW wheat in the Midwest were steady to weak early on Thursday.
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