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Wheat looking for direction

Agriculture.com Staff 11/13/2006 @ 7:42am

Wheat is still struggling to regain its upside momentum, and without a strong fundamental direction of its own, it's still taking most of its cue from the corn market. Having said that, however, while corn managed to see new contract highs this week wheat staged only a meager rally as it tagged along.

Following Thursday's bullish crop report for corn, after neither market could sustain the rally wheat received the brunt of the selling pressure when corn faltered.

The crop report offered little changes for wheat, with no adjustments for the US stats and a slight increase in world production along with a slight decrease in world ending stocks. USDA did increase Russian production by 2 MMT and their exports by 1 MMT, which helps to explain why Russia has been a persistent presence in the export market, long after we figured they'd be out of wheat.

It was corn stats, however, that most were closely watching. With bullish numbers already in the market from the previous week, it would have been hard for USDA to present an even more bullish situation, but they did. They decreased corn yields 2.3 bu/acre for a total crop of 10.745 billion bushels, at the low end of trade expectations. They also shaved exports and feed usage 50 million each, taking ending stocks down just 61 million from last month to 935 million bushels, still less than half of last year's ending stocks of 1.971 billion.

Corn is clearly the new leader of the grain complex, and its price action has a heavy influence on wheat's price action. Wheat's own fundamentals have turned neutral at best as export sales so far this marketing year are the slowest in 30 years. In addition to Russia's presence in the export arena, we also see China offering feed wheat for sale, with talk they may even let some milling wheat go.

A quick look around the world as next year's winter wheat crop gets planted, we see India increasing acreage an estimated 7% with good planting conditions so far. If Mother Nature cooperates, they would be looking at their second largest crop on record. The CIS (Russia, Ukraine, Kazakhstan) is planting into mostly good conditions with some dry pockets and weather turning colder quickly. China has received much attention lately with their very dry conditions in major winter wheat planting regions, and indeed may see a drop in yields, but 80% of their wheat acreage is irrigated, so the impact is not expected to be great.

The EU is also having generally good planting conditions. The US is approaching dormancy with most of the central and southern Plains in good shape but with dryness creeping back into several regions of KS and OK. US acreage is expected to be up between 5-20%, primarily in hard red winter wheat.

Australia can't get a break, what little wheat they have is now getting rained on as they try to harvest it, with fears that they've already seen more yield declines and now quality deterioration. The Argentine harvest is moving along with few problems, sitting around 10-15% done. They're expected to produce about an average crop of 13.25 MMT.

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