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Harvest will tell the tale

The trade was closely watching the Kansas crop tour this week, expecting confirmation of widespread frost damage. What it got was a confirmation of widespread crop recovery; most notably in the western regions. It looks like the cool, wet weather did, indeed, allow the plants to rebound from the record cold.

By the end of the tour, analysts were projecting the best yields in 10 years in west KS. Some even suggested that the increased production from the west would offset the losses in the central and eastern regions. I guess harvest will have to provide that answer.

After three days and 447 fields, the tour estimated total KS wheat production at 392 million bushels, up from last year's estimate of 319 million. Average yields were 41.0 bu/acre, compared to last year's 37.3 bu/acre. The crop tour did report the prevalence of widespread disease due to the wet and cool weather. Forecasts for more wet weather will not help that situation.

Informa weighed in with their winter wheat estimates, suggesting total US winter wheat would total 1.604 billion bushels, down just 35 million from their pre-frost estimate. They project hard red winter at 984 million bushels, up 1 million from their earlier estimate; obviously they're in the camp of believers that the losses in central KS will be offset by increased yields elsewhere. They did offer a reduction for soft red, with their estimate at 378 million bushels, down 36 million from earlier estimates, and soft white wheat unchanged at 242 million bushels.

USDA will release their May crop report on Friday, May 11, giving us their first statistics of the 2007/08 crop year for the US and world. The KS crop tour is often very close to the estimates of USDA.

Still, much of the grains' attention continues to focus on the planting problems for corn, with wet conditions persisting in the western Midwest. Some plantings will certainly be delayed this year, the question is how much and will those acres be switched to beans or to a shorter season corn. Corn prices had a strong week in reaction to that increasing probability, finally breaking above significant trading range resistance. Some technicians are looking at that breakout as the sign that seasonal lows are in and breaks will now be well supported.

Soybeans are also responding to the increasing likelihood that they will see at least a minimal increase in acres. After a nice rebound late last week and early this week on the prospect of corn plantings being on time, now that rally has stalled under the weight of large world stocks and potentially higher US stocks.

With all of the attention focused on US woes, we can't lose sight of developing problems around the world. We've been monitoring the increasing dryness in Europe, Russia, Ukraine, China and Australia. The Aussie's got a shot of rain last week in the east, which is a huge boost as they begin planting. However, the west is still dry and the whole continent still needs timely rains with little in the forecast.

Europe's rainfall for April in general was about half of normal and some regions are beginning to experience significant drought issues. Northern Italy issued a State of Emergency right before they got a heavy rain, but they still need more. Germany's crops are in critical condition after one of the driest Aprils on record. Much of Europe is forecast to have rains over the weekend, which will be essential to preventing yield declines.

The growing season is still young, and timely rains could eliminate these dryness issues, and needles to say those regions will continue to be closely watched. Even if the US winter wheat crop recovers well enough to make up for freeze losses, the world wheat stocks situation will remain tight. The corn planting problems developing in the US (and potentially soybean planting delays as well) could easily be supportive for wheat as well. Therefore, while wheat prices may still experience some pressure in the short term, the longer term fundamental outlook would still suggest that it won't fall apart and breaks will be well supported.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

The trade was closely watching the Kansas crop tour this week, expecting confirmation of widespread frost damage. What it got was a confirmation of widespread crop recovery; most notably in the western regions. It looks like the cool, wet weather did, indeed, allow the plants to rebound from the record cold.

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