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Wheat market fights bears

Agriculture.com Staff 09/24/2007 @ 1:54pm

The wheat markets are clearly showing that they are not ready to roll over just yet. The choppy price action over the last several sessions has seen plenty of aggressive selling, only to find buyers waiting in the wings and eager to take advantage of the pullbacks.

For two weeks now, the price activity has been a combination of quick moves in both directions, filled in by directionless trading that keeps us rangebound and unable to maintain momentum in either direction. And so we continue to hover just below the $9 mark on Chicago Dec, waiting for the next big event to knock the market out of its comfort zone.

Of course, that would depend on developments in Australia's crop and the pace of export demand here in the US. Australia continues to see their wheat crop wither, with production estimates falling further as every day goes by. The latest projections are suggesting a 12-13 MMT crop, down from ABARE's 15.5 MMT just a week ago.

Rains have not materialized in key growing areas of Australia and producers are abandoning hopes of harvest and looking to graze or hay the crop in many of the eastern growing regions. Western Australia looks to be their best hope, and even there the rains have been spotty and barely enough to keep the moisture base ahead of evaporation.

Export demand continues on its blistering pace, with another impressive sales week of 1.6 MMT, again higher than trade expectations. Yes, the weaker dollar is helping but it's still comes down to the fact that world supplies are record tight, Australia is losing another crop and the US is about the only game in town. Russia announced a barley export tariff and suggested that they would release government wheat stocks if domestic prices got too high.

Iraq bought 500 TMT of wheat; 400 US hrw and 100 Canadian. Just days later, they announced another tender. They, too, are watching events unfold in Australia, one of their major suppliers, and are taking steps to insure adequate supplies down the road.

Buyers have been forced to front-end load their purchases as a result, hence our breakneck pace of export sales despite record high prices. At what point the buying stops is anyone's guess. While Argentina will be able to fill some of Australia's void, most of their exports will still go to Brazil. After that, the next major exporter's harvest won't be until next spring which is a very long wait for those needing to buy and already in short supply.

While the wheat market has shown signs of cracking, the dam has not been broken yet. I still think Australia holds the key to near term price action and until the market can get a better grasp of production from them, it will continue to fend off the bears. That production number will be known in just a few short weeks.

Informa released their acreage estimates last week, with total wheat plantings up 2.1 million acres to 62.6 million; that's after a 3.3 million acre increase in wheat plantings last year. Corn will lose about 4.7 million, soybeans gain 4.8 million and cotton lose 900,000.

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