Trade needs convincing of a summer rally
As a reminder, the CBOT futures exchange is closed Monday April 28th in observance of Memorial Day with the E-CBOT available Monday night and open outcry side by side electronic trade reopening Tuesday at 9:30 am central time.
Wheat Fundamentals: The world wheat trade spotlight is on the 988,000 acres of crops lost in the Ukraine, and dry weather stress developing in Russia and Kazakhstan. Add to this bullish development the fact the USDA is projecting world wheat stocks to be at 27 year lows even before the weather problems arrived in Ukraine, Russia and Kazakhstan. Include the severe weather in the southern Plains on Thursday which may have brought on a serious case of lodging. As long as we are adding to the bullish side, strong new crop wheat sales for the week ending May 17th even though old crop had net cancellations. Add in the International Grain Council reducing its world production outlook from 623.4 MMT to a new smaller level of 620.6 MMT. Add to these weather problems the fact Western Australia (the main wheat growing region) remains dry and very little if any relief is forecasted for the next full week. Western Australia accounts for 34-38% of the country's annual production. Surprising is news on Friday the Australian Crop Forecasters suggest the country is on its way to producing a near record crop of 26 MMT even though the USDA is suggesting a crop of 22 MMT. This could be a ploy on Australia's part to suggest world demand can consider Australia as a potential supplier after drought cut its 2006 crop in half. Pakistan was prepared to export 1.3 MMT of wheat and was targeting India as a prime target on Tuesday but canceled the plan less than 24 hours later based on inflation fears. India was looking to import 1 MMT of wheat immediately but has backed off its demand to a level of 300,000 to 400,000 tonnes as it suggest it has managed to pry supplies from its farmers while visiting the US discussing past wheat quality issues. Anticipate bearish talk to develop as prices reach higher and the trade suggest the US is pricing itself out of the global picture. The main problem with that particular thought process is, the competitive landscape is waning as crop weather problems are growing across the globe.
Dec CBOT Wheat Futures: revised May 22, 2007, Allendale's Dec wheat futures price projections suggest a harvest low of 4750 and then rally to slightly more than $6 only to correct to $5 before Dec futures expiration. This information may help us with our marketing advice just below.
Wheat New Crop Hedges/Marketing: presently Allendale has its new crop hedges mainly in the July futures with a small amount in the Dec 2007 futures. We have resting orders to add another 10% new crop wheat hedges in the Dec futures at a level of 5520 to bring our total hedge amount to 70% of anticipated 2007 production. The level designated is a result of our Dec 2007 futures price projections found within our internet site. The July-Dec wheat spread is 24 cents carry. At the Minneapolis Grain Exchange the National soft wheat Index has a 7 cent inverse for cash between July and Dec suggesting wheat be sold off the combine. So we have futures suggesting there is 4.3 cents per bu per mth carry while the cash market suggest a need for four cents. This development suggest it may be wise to sell the harvest to the elevator (handle once) but you may also want to consider purchasing a Dec 5000 Call and Sell a Dec 5600 call for 19 cents for reownership based on tight projected world end stocks and the potential for corn and wheat futures to rally this summer.