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Tim Hannagan: Mixed grain market news

Agriculture.com Staff Updated: 07/23/2010 @ 5:01pm

By Tim Hannagan

PFGBest.com Market Analyst

Thursday’s weekly export sales report came out putting wheat exports last week at 382 t.m.t. up 24%  from the  previous week. This suggests that some buying for insurance against falling world production may be beginning. 

With 950 million bushels sitting in U.S. storage there’s no threat of running out the next 12 months  but fear of continued world production declines may lead more end users to move from hand to mouth buying as needed to buying 10% more to lay aside as were still at fair value on prices. The 2008 record high prices are not far removed from trader’s thoughts. For now, the number is neutral to demand but suggests future weeks could come in higher. 

Wheat’s current production short-falls on foreign port producers is long from being known. Production numbers, or lack thereof, won’t come to light for another month as these countries lack the sophisticated tabulation system of the U.S. what we do know is, Russia was a monster wheat exporter this past season, under cutting U.S. prices dramatically and cutting our exports sharply, especially to number one world wheat buyer Egypt, once a reliable U.S. wheat buyer. Russian wheat fields are suffering from their worst drought in 30 years. 

This week they announced they would trap into their meager wheat reserves, as they sold about all they had, and started moving it into their domestic market to cover needs. This certainly suggests a ban or slow down in their exports are coming. The European Union, made up of 27 countries, is also in the grips of drought. Canada’s crop, down 19% and 6 million less U.S. wheat acres this year, sets up a potentially dramatic reversal in world production and the trader trading psychology. 

As you know trend-following funds were short a record 77 thousand contracts four weeks ago and entered this week short 37 thousand. This short covering took December wheat futures from 4.84 four weeks ago to 6.28 entering this week. On the surface, the charts look overbought. But, with world wheat production set to take a dramatic turn around, its possible funds may buy back the remaining 37 thousand short positions. This would not mean they have turned bullish but means they are no longer bearish. Whether they turn bullish and buy long or build a long portfolio are several months away. But, going to a neutral portfolio could take December to 6.40 to 6.80 easily. 

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