CBOT Wheat outlook: Firm dollar knocks down prices

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CHICAGO (Dow Jones)--Strength in the U.S. dollar and broad selling of commodities are expected to weigh on U.S. wheat futures in early trading Monday.

Traders and analysts predict soft red winter wheat for July delivery, the most actively traded contract, will start 8 cents to 10 cents a bushel lower at the Chicago Board of Trade. In overnight electronic trading, the contract slid 10 3/4 cents, or 1.3%, to $7.95 3/4 a bushel.

The firm dollar pressures prices as it makes U.S. commodities less attractive to foreign buyers. Selling linked to the rising dollar was expected to weigh on the grains, soybeans and crude oil.

Wheat futures could pull back after surging nearly 16% last week on concerns about poor weather threatening output in Europe and the U.S. Traders may take some profits off the table, although the weather remains unfavorable.

"The stronger dollar is going to lay waste to many commodity markets," predicted Dennis Gartman, publisher of the Gartman Letter, a daily financial newsletter.

Crop concerns should limit losses, as conditions remain too wet for planting wheat in the northern U.S. Plains and too dry for developing wheat in Western Europe, analysts said. Grain users are on edge about poor weather after a historic Russian drought and other problems slashed global output last year, sending prices sharply higher. Prices reached 2 1/2-year highs in February and have since pulled back 11%.

Weather worries center on northern Plains states like North Dakota, where conditions have been too soggy for farmers to put spring wheat in the ground. The delays are particularly concerning after a severe drought slashed output in southern Plains states like Kansas, tightening supplies of high-quality wheat used to make bread.

"Given the damage wrought upon the hard red winter wheat crop in western Kansas, Oklahoma and the High Plains of Texas, the spring wheat crop this year is all the more important. But it is behind and much of the hoped-for crop will not be planted at this late date," Gartman said.

In Europe, more rain is needed to support winter wheat in England, France and Germany, with crop losses increasing due to drought stress, according to Telvent DTN, a private weather firm. Showers and cooler conditions this week should not be enough to ease concerns, the firm said in a forecast.

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