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Not buying wheat bullishness

Agriculture.com Staff 07/25/2007 @ 8:38am

Pro Ag senses a change in weather for grains this week that could have huge repercussions for grain producers and buyers across the world.

Corn/bean weather is turning more adverse, with warm/dry conditions beginning to envelope the U.S. Corn Belt at a critical stage of development (reproduction). While corn is far enough along that devastating yield losses may not be possible in many areas, soybeans still have the most critical development stage ahead of them (podding). While heat blasted the northwest Corn Belt this week (100-110 degree highs), damaging both corn and soybeans, the majority of the Corn Belt had more moderate temps (central and eastern Corn Belt) that prevented major crop losses from occurring. That might change in the next 2 weeks if current forecasts are correct, which call for warm/dry weather across the northern 75% of the corn belt. Corn/soybean crop conditions and yield potential have already declined for the past 2 weeks here in mid-July. Pro Ag expects even more significant declines next Monday, though, as very little rain has fallen so far in the Corn Belt this week.

While corn/soybean weather has turned adverse (hot and dry), this same weather will accelerate wheat harvest, providing ideal harvest weather for the majority of North America (both Canada and the U.S.). The remaining 60% of the North American 2007 crop is in excellent condition, so Pro Ag expects yields to rise in wheat for both Canada and the U.S.. This heat is just too late to do much damage to U.S. crops, and even Canadian crops will suffer little from warm/dry weather the rest of the 2007 season.

Pro Ag finds it interesting that U.S. wheat markets are following the thinly-traded French wheat futures at MATIF, with French milling wheat running to new highs this week-dragging U.S. wheat futures prices to new highs as well. But there is only about 75,000 contracts of open interest in this relatively small market (and only about 2000 contracts traded daily on average the past year), yet U.S. wheat futures are following it?

Media sources are reporting that rains/flooding is delaying northern France and Germany wheat harvest, but Pro Ag isn't buying this explanation. What about the warm/dry weather in U.S. wheat areas for harvest? What about the catching up of U.S. winter wheat harvest to normal levels (81% now vs. 81% average), in spite of the well publicized delays in OK and parts of TX/KS?? What about the ideal HRS wheat harvest weather forecast for North American wheat areas (U.S. and Canada)? Or more importantly, what about the higher HRS wheat yield potential suggested in the crop conditions report Monday? Pro Ag yield models rose a huge 0.65 bu/acre in U.S. HRS wheat to over 40 bu/acre, the highest yield estimate of the year! Or what about forecasts that call for below normal precip in most of France, Germany, and most other western European countries over the next 7 days?

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