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Wheat buoyed by crop report

Agriculture.com Staff 05/14/2007 @ 1:43pm

The wheat market got a boost from the crop report despite USDA's numbers being somewhat negative for US wheat. The report is also supportive for world wheat fundamentals.

Strength in both corn and beans were enough to ward off bearish sentiment and pulled wheat strongly higher with the rest of the grain complex.

USDA's report, simply put, showed that all grain stocks will remain tight for at least another year. And that's assuming weather is accommodating for this growing season, not only here in the US, but all the rest of the world. That's asking a lot, particularly considering that many major growing regions of the world are already experiencing early stages of weather problems.

Weather issues are not just here in the US, where frost shaved wheat production and wet conditions are slowing spring plantings. We're also witnessing some stress taking hold in Russia, Ukraine, China, North Africa, the European continent and still in Australia. That's a big chunk of wheat area, any one of which would make a notable difference in world statistics.

In a quick rundown of the report, USDA projected total wheat production to be 2.174 billion bushels, up 362 million from last year. That includes 3 million more acres, and the rebound in Kansas production from frost. US exports were increased 65 million bushels to 975 million. Ending stocks were increased only 57 million bushels due to larger domestic use and exports.

Looking at world statistics, USDA increased world production by 22 MMT over last year to 616 MMT, but actually decreased world ending stocks by 7 MMT to 113 MMT. Argentina, Canada, China, and North Africa were all lower while the US, Australia, EU, India and the CIS were all higher. While export competition will remain as stiff as ever, the overall decline in world stocks should keep wheat well supported on breaks.

It was a similar story for corn, with world production up sharply by 69 MMT to 766 MMT, but ending stocks were lowered to 90 MMT, 3 MMT lower than last year and a huge 32 MMT from just two years ago, when there were numerous corn piles on the ground here in the US and we were all wondering how we would ever use it. The dramatic shift in world corn stocks underscores the huge shift in demand and the importance of adequate production this year – despite the major increase in plantings.

I look for grains to be generally supported on breaks. We might get more downside pressure for corn on good planting progress, and plenty of moisture in the Midwest. But, I think that the production numbers we're looking at will be the best we see this season, and that's assuming good weather. Obviously, we can expect much more volatile price action this summer.

Technically, look for support in Chicago July at the trough of 4.85, followed by the swing low of 4.78 and then the old trading range low of 4.65. Resistance should show at the recent trading range high of 5.03, then the trough of 5.17, followed by the contract high of 5.30. In Kansas City July, look for support at the trough of 4.76, then the swing low of 4.71, followed by the gap from 4.59- 4.63. Look for resistance at the recent trading range of 4.89, followed by the trough of 5.02 and then the swing high of 5.18.

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