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Wheat pushes higher

Kansas City wheat continues to lead the entire wheat complex higher, surging to the highs reached in March, 2004. While price action has become more choppy, and despite a round of fund-led profit-taking on Wednesday, the bull market is still intact and will likely stay that way until we get meaningful rains.

Demand remains strong, despite Egypt once again snubbing the US with a 240 TMT purchase from the EU and Australia.

On the world front, we see a general rise in world prices as even Russia is experiencing an upward trend in domestic prices. We see that the EU continues to lower the level and the quantity of their rebates, only subsidizing 177,000 MT at 3 Euros/ton this past week. India is still in the throes of sharply higher domestic prices, even though their government says they will be importing 500 TMT. Their own traders wonder if that will ever take place, since the imports will be arriving during the early stages of their expected record harvest. And speaking of India, what was once thought to be a record wheat crop of 75 MMT is now being downgraded to maybe 70-75 MMT because of extreme heat in the main northern growing areas that will likely reduce yields.

We continue to wait for the Iraqi announcement of who will get the business from their 1 MMT purchase. We now know that Australia won't be receiving any business from Iraq for awhile; the Iraqi Grain Board announced that they were suspending its business relationship with Australia until the oil-for-food inquiry ends. This is certainly a blow to Australian producers who will take the punishment for the deeds of their monopoly wheat exporter, AWB. And, obviously, it is a bonus for the US, the main competitor for the Iraqi business.

Thursday gave us the monthly supply/demand report from USDA. The trade fully expected to see an upward revision of hard red winter wheat exports and a downward adjustment in those ending stocks and total ending stocks as well. However, the US stats were left unchanged in all categories, with a slight downward adjustment in world ending stocks. The market brushed off the report, with many traders suggesting that USDA is simply not being realistic with their figures.

With prices already testing two-year highs at 4.30 - plus in KC front month, we're all trying to figure out where they go from here. Fundamentals are very bullish, with weather quickly taking center stage even though we're still in February. With stocks already very tight for hard red winter, no increase in acreage and very dry conditions in TX and OK, the prospects of supplies remaining tight even for the next marketing year are very high. If it stays dry, we could certainly reach the 2002 highs of 4.90. Mother Nature holds the answers, not me.

But, we can't ignore how quickly things can turn if it starts raining. Just being a prudent marketer would suggest that these prices must be taken advantage of, with at least sales of old crop wheat and some sales of new crop. Even as important though is to consider locking in '07 and possibly '08 crop. The chances of fundamentals being this strong two and three crop seasons down the road are slim. And maybe that's where we should focus our fixed futures for now, and just use put options for the '06 crop, since it's this year's fundamentals that have gotten us this far and could take us much further. However you manage it, it just seems wise to get sales on the books.

I look for the market to feel the seasonal tendency of weaker prices into late February. I also expect that KC will continue to gain on Chicago even during the seasonal weakness. We could see significant corrections given the strong rallies that we've had, but the long term trend is still up. Unless the weather turns wet in the southern Plains, I would use corrections as opportunities to re-establish longs and/or buy call options to replace sales.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

Kansas City wheat continues to lead the entire wheat complex higher, surging to the highs reached in March, 2004. While price action has become more choppy, and despite a round of fund-led profit-taking on Wednesday, the bull market is still intact and will likely stay that way until we get meaningful rains.

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