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Wheat keeps pushing higher

Agriculture.com Staff 10/02/2007 @ 9:00am

More blistering export sales, chasing would-be top pickers and establishing more all-time highs. All in a week's work for the wheat complex, which refuses to break and continues to confound the bears. Even at nose-bleed levels, this wheat market is as strong as ever.

The demand base is enormous as buyers continue to front-load their purchases. The withering crop in Australia has forced many buyers back to the table to stretch their supplies until the Northern Hemisphere's crop is harvested. Even acknowledging that they may already have adequate supplies, these same buyers are contracting for more – just in case. Export sales were 1.5 MMT, with most of it hard red winter wheat sales. After factoring in cancellations, soft red sales were a goose egg.

For the most part, most of the demand has been directed to the US, where the markets are freer to negotiate. The uncertainty surrounding Russia's talk of export tariffs sent buyers either here or to Canada. It does appear, however, that Russia is finalizing their export tariff rate to 10%, which some analysts suggested would do little to slow down their sales. There is also talk that once Russia's rules are finalized, buyers will be more confident in initiating contracts with them.

Black Sea activity will be monitored very closely as they've been known to spoil many a bull party. And it wouldn't come from just Russia; Kazakhstan announced this week that their wheat production reached a new record at 19.8 MMT, well above USDA's last estimate of 14.0 MMT. The Ukraine looks like it will keep what it has after announcing that they would shut down exports after Nov. 1.

The small grains and stocks report just added fuel to the bull's fire, with US wheat supplies getting even tighter. All wheat production pegged at 2.067 billion bushels, down 47 million from USDA's September supply/demand report and 51 million lower than the average trade estimate. The lower production takes ending stocks very close to the 300 million bushel mark. The surprise came from white wheat and spring wheat, where production was much less than expected, and prompted Minneapolis to regain some ground in the wheat complex.

The stocks report was bullish as well at 1.717 billion bushels as of September 1, the lowest figure in 33 years. On-farm stocks were a mere 495 million, reflecting the aggressive selling pace by farmers. Contrarily, beans and corn stocks were well above trade estimates and cast a negative tone to their market. With active harvesting for both crops, plenty of stocks on hand and a huge corn crop on the way, the row crops will continue to struggle to keep pace with wheat.

It does, however, suggest that feed grain supplies will be plentiful here in the US and should help alleviate world feed grain shortages as well, eventually taking some of the buying pressure off of wheat. That's not to say that wheat can't continue to rally. In fact, wheat supplies will remain very tight until the Northern Hemisphere's crop comes online.

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