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Wheat finally gets a correction

Agriculture.com Staff 09/17/2007 @ 12:19pm

For roughly the last month, wheat has been trending almost straight up with very little correction.

Last week it took out $9 before finally getting a pullback. The whole world watches as they wonder if we've already seen the high or if this slight pullback is just the market catching its breath.

So far, the pullback has been orderly, despite the first day being limit-down after breaching the $9 level. What volatility there has been was relatively contained in limited trading ranges. The price action hasn't been the huge swings up and down that typically happen at the end of major moves.

The fundamentals haven't lost their bullish momentum, with last week's export sales the largest since 1979 at 2.1 MMT, a whopper that takes us to over double of last year's sales. Soft red winter continues to lose pace to hard red winter, and the spread between KC and Chicago continues to narrow. The pace of demand doesn't appear to be letting up, either, as Pakistan announced over the weekend they would be seeking up to 1 MMT of wheat.

Australian weather had another disappointing week, with very limited rainfall and more reports of producers throwing in the towel and grazing or haying their wheat. The Australian situation has dramatically shifted the demand calendar, with buyers stepping up their purchases much more aggressively for Northern Hemisphere supplies as Southern Hemisphere supplies look dismal. The official Australian government reporting agency, ABARE, will issue their monthly outlook on Tuesday.

Luckily, Argentina has fared better than Australia as their rains have been more consistent after their slow, dry seeding period. Most major production areas of Argentina have adequate moisture as they move into the heart of their growing season.

USDA's crop report was quickly brushed aside as their Australian production estimate of 21 MMT was still well above where private Australian forecasters have placed their estimates of between 15 – 18 MMT. US ending stocks were shaved down to 362 million bushels, basically just enough for pipeline supplies.

World production numbers were also lowered by 4 MMT, coming mostly from Australia, the EU and Canada. Those reductions were offset by an increase in the Former Soviet Union states. World ending stocks were lowered by 2 MMT to 112 MMT, the smallest actual number since 1975/76, further tightening the stocks/use ratio to 18.1% which was already at an historical low.

The rising tide of wheat is lifting all boats. Corn and beans are pulled higher as the world demand for feed grains shifts away from expensive wheat, along with their own positive bio-fuel fundamentals. The fight for acreage has already begun with winter wheat plantings expected to be sharply higher. Record high prices and good planting conditions will pull more acres into wheat, putting pressure once again on the row crops to allocate what's left next spring.

For now, the trend is still up as the correction has not violated any major supports. Demand remains strong as buyers are still willing to pay these high prices and supplies only look to get tighter as the rains continue to disappoint in Australia.

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