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Weakness continues

Agriculture.com Staff 07/15/2008 @ 7:24am

Another weak start for the week in the wheat complex, but then prices went into another sideways pattern. Harvest pressure has declined as combines move quickly out of Kansas, but rallies have been few and short lived.

In fact, outside markets are having as much influence on wheat prices as the fundamentals themselves. Of course, corn is by far the most influential, and the downward pressure on corn prices has taken a toll on wheat as well. It certainly seems that corn's long term high is in, and thus wheat is losing a strong pillar of support. The grains do find some support, however, when we get the surges in energy prices from the biofuel connection, or when the equities see heavy selling as investors shift to commodities, a common occurrence lately.

USDA issued their monthly supply/demand report Friday morning, giving the markets much to talk about but not much direction. Indeed, it was outside markets on Friday that had more impact with equities sharply lower amid increasing uncertainty about the US economy, but the report's numbers are still important.

For wheat, USDA increased US production by 29 million bushels from last month's estimate to 2.461 billion bushels, a 19% increase from last year's production. Ending stocks were increased by 52 million bushels for the 07/08 year to 306 million, and also raised by 50 million for the 08/09 year to a much more comfortable 537 million. Exports will be down this year by 267 million, as the world increases production and export competition heats up.

World production was raised by 1.3 MMT to a record 664 MMT, a 9% increase over last year. World ending stocks were also increased by 1.0 MMT to 133 MMT, a 15% increase over last year. They even raised Australia's production estimate by 1.0 MMT, a surprise considering that recent estimates from Australia have shaved estimates. Nevertheless, for the near term the Northern hemisphere's crop is almost home and it will be aggressively looking for a home.

And that home will include the feed grain market, where USDA increased wheat feeding by another 30 million bushels over last month to 285 million, a huge increase of 265 from last year, and up 164 from the 06/07 marketing year. Here in the US, export sales have remained relatively strong, despite increasing competition from the EU and Black Sea. A weaker dollar has helped our cause, but one can expect that export competition will remain very tough for the next few months. USDA left exports unchanged at 1 billion bushels, down 267 million from last year.

And then, all eyes will once again turn to the Southern Hemisphere where rains have been intermittent for Australia, but so far the crop is off to a respectable start. Argentina has had a more difficult time between dry spells and farmer protests getting the crop in the ground. We're looking at a reduction in acres there.

It is interesting to note that once again, Australia will likely hold the key to wheat's price future. If they have a good/great crop, the world has comfortable stocks. However, another bust like the last two years and we're off to the races again. Granted, we still have to get the remainder of the Northern Hemisphere harvested, which is where we ran into problems last year, but the market won't react until there are actually problems.

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