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Crop report is no help

Agriculture.com Staff 09/15/2008 @ 11:37am

Wheat markets continued their slide this week, as more gaps kept bears in control and bulls on the sidelines. Continues growth in world supplies and more competition for sales are too much even as meager support emerged from the row crops.

USDA's Supply/Demand report saw no changes for US wheat, but several adjustments for world wheat. As expected, the Black Sea region saw another production increase of 4.71 MMT, most of it from Russia and Ukraine. The Black Sea exports were also raised .4 MMT to 28.74 MMT, compared to the 27.22 MMT the US is projected to export this year.

The EU also had a production increase of 4 MMT, with exports raised 2.5 MMT to 18 MMT. Some of these large production increases were offset by a reduction in Australia, which was lowered 3 MMT to 22.0 MMT and more in line with recent private estimates. Australia's exports were lowered 1 MMT to 14.0 MMT, still double last year's pace. Argentina also had their production estimate lowered by 1 MMT to 12.5 MMT. Their exports were lowered 1.0 MMT to 7.5 MMT, compared to 10.0 MMT last year.

STATS Canada reported that at the end of their 07/08 crop year, which ended July 31, wheat stocks (excluding durum) totaled 4.0 MMT, down 28.6% from last year. Durum ending stocks totaled 842,000 MT, down 31.7% from last year. The drop was due primarily to a decline in production in 2007, following the lowest spring wheat seeded acreage in more than 30 years.

US export sales remained fairly robust at 457,000 MT last week; however, we're still losing key business. Egypt was in this week for 190,000 MT, none from the US. Sellers were Russia, Ukraine and France. Iraq bought 100,000 MT from Romania, a rare sale from the EU. A higher US dollar and increasing competition from across the Northern Hemisphere are making export sales increasingly difficult.

Ukraine announced this week that their total milling quality wheat stocks would be 47% of total wheat production, compared to 45% last year. It appears that despite the late harvest rain delays and concerns of quality declines, that they will have ample food wheat stocks available for themselves and also some for export.

Southern Hemisphere wheat production remains uncertain. Argentina is still trapped in a major drought cycle with little hope of relief in near term forecasts. Australia has had timely rains in most areas, but some regions had suffered too long before rains began and are seeing yield declines. At this point, it looks as though Australia will produce about an average crop if timely rains continue. The early season hopes for a bin-buster crop are all but gone.

Technically, wheat continues in its deeply entrenched bear market and rallies are barely blips on the charts. Even a strong day on Friday for corn and beans couldn't support the wheat complex. The recent gaps below key support levels only reinforce the bearish technical formations and sentiment. For Chicago December futures, short term downside targets are now the trading range from last fall from 7.10-6.70, and longer term downside support is at 5.90. Resistance is Friday's high of 7.42, and then the gap and double-bottom breakout from 7.57-7.70. In Kansas City December futures, supports rests at the old 6.75-7.10 range, and then 6.35. Resistance is Thursday's high of 7.78, and then the breakout from 8.09-8.14.

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