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Wheat market bottom

Agriculture.com Staff 10/01/2009 @ 9:16am

Wheat markets might have finally found a bottom. Wheat closed higher yesterday on a negative report which has been waited on for some time by the trade.

Obviously, the HRS wheat crop was much larger than USDA had previously reported in the August report, and in this report they raised the ND yield 10% in wheat, barley, and durum. All of these numbers were quite large revisions for the last report of the year. Maybe the limit of change from one month to the next is 10%? USDA offset some, but not all, of the wheat production increase in HRS wheat by cutting most other classes of wheat (except durum). It looks kind of suspicious, but winter wheat changes at the end can and often do happen, and we can only shake our heads and wonder about these late USDA changes (like changing 2008 soybean yields today).

But alas, USDA is the numbers we will be trading for now, and these are the numbers that will be plugged into the S/D balance sheets as well. So here we are, with another year gone by for small grains. It was a good crop for most, but especially in barley where yields were the best ever since reporting began. A perfect production year was followed by a pretty good harvest season (although later than normal).

Today's upside reversal in wheat supports the premise that wheat prices may have bottomed finally! Buying continued all day after the negative report, and you wonder who was left to sell when the opening bell selling abated. The only ones who didn't know about the large US HRS wheat crop apparently were selling this morning at the lows, while everyone else was buying. These guys who were sellers are probably trapped in a bear market trap set by the negative USDA report this morning.

For bulls, though, the line is now drawn in the sand, and its apparent that any bullish trader now has a specified risk parameter (today's lows) that can be relied upon. If we can't hold those lows, maybe there is more downside risk but it doesn't look likely today that these lows will be broken. Wheat harvest is complete, and bin doors are probably slammed shut for now on wheat that didn't already find its way to a point of sale.

Much might be determined by the corn and soybean crops, then, which still has virtually all of the harvest ahead of them, yet. If corn and soybean crops come in larger than expected, maybe wheat prices can come under further pressure. But given all the large crop expectations earlier this year (our yield models touched 166.5 bu corn and 45.6 bu soybeans at one time), but they are starting to slip lower as we finish out the year. That indicates to us that yields are a little disappointing to producers, and we might not see that record shattering yields that many were expecting in late August. What is most surprising is that these yields were jumping much higher earlier in August, but all that nice weather in September didn't hike yields much from those lofty levels projected in August. Kind of disappointing to many, but the market is not as likely to sag as low as was earlier expected at harvest with a sliding condition rating as we enter harvest.

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