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Wheat explodes higher

Agriculture.com Staff 06/18/2007 @ 10:50am

Well, who would have expected that this week would take us to 11-year highs? Can't say I did. But once the market started to roll it just kept rolling, taking no prisoners and taking very few breaks.

Sure, the supply/demand report issued on Monday did show world stocks at 30-year lows at 112 MMT, with stocks/use ratio at an all-time low of 15.5%. And yes, that was bullish, but that was just part of the bullish input. When the trade saw very little weekend harvest activity once again because of non-stop rains, and came to grips with the reality of lower than expected yields and plummeting quality in the southern plains, it realized that those numbers from USDA would only get tighter in the very near future as they weren't included in the USDA report.

The trouble spots of Ukraine and Russia are not getting any relief, either, which has kept solid support for the European market, and then spills over to US markets as well. The ever-tightening situation for world wheat supplies, not to mention quality supplies, is becoming all too clear and all too critical.

With supply stats tighter than even 1996 and getting tighter, one can see how a near panic situation from the buyers can develop. I think that, indeed, that is starting to happen for we see demand stay strong despite these high prices. Export sales were better than expected at 413 TMT last week, despite prices rallying back to 10-year highs. And countries are still putting out tenders despite the rapid price rise.

India, who had just rejected all bids for a 1 MMT tender just a few weeks ago because prices were too high, re-entered the market with a 2 MMT tender this week at prices that were $1 higher than the first time around. Even though India had a much better crop this year than last year, it is having a great deal of difficulty procuring it from the producers. The producers are demanding higher prices than the government controlled prices, which are currently below world market levels. Egypt made a purchase early in the week, and tendered again late in the week only to reject those offers as too high. The interest is there, but there is clearly some sticker-shock going on.

Kansas City July futures rallied 97 cents in just four sessions, ending the week just 19 cents off that 11-year high. The market took a breather on Friday, but the sellers weren't willing to step in front of a market heading into a weekend where harvest looks to be delayed once again. I think this market is going to hold together until it sees what the Kansas crop has to offer. That could be awhile yet because some many combines are still stuck in Texas and Oklahoma.

The reports we're hearing from Kansas continue to get more dismal, with the relentless rains taking their toll on crop quality with rampant disease issues in a crop that was already stunted by frost. To make matters worse, the northwest region of Kansas and eastern regions of Colorado were actually experiencing drought stress, according to a well-respected Kansas agronomist. This area was to be the saving grace of the Kansas crop, but some are suggesting it won't be any better than the other afflicted areas.

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