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Wheat rally stalls

Wheat markets look like they're finally giving in to harvest pressure - after weeks of managing to rally during the early stages of harvest.

Of course, corn was the leader higher with wheat following closely behind; but now corn is faltering with the weather improving (for most areas) and the acreage report this morning showing corn planted acres above average expectations and quarterly stocks also above expectations. Without the pillar of support from corn, wheat is free to fall, and it could indeed go into a freefall.

Acreage estimates for all wheat were 63.457 million acres, about 300,000 less than the average guess and 3.025 million more than last year. Spring wheat acres were 14.197 million, compared to 13.297 last year; durum was 2.655 million, compared to 2.149 last year. All winter wheat acres were 46.605 million, compared to last year’s 44.987 million. Corn acres were 87.327 million, almost 1 million more than the average guess and 6.2 million less than last year. Soybean acres were 74.533 million, slightly less than the average estimate but up 10.9 million from last year.

The quarterly stocks report was also released with more bearish numbers for corn. Corn stocks as of June 1 were 4.028 billion bushels, 134 million more than trade estimates, and 494 million more than last year. Soybean stocks were 676 million, just 13 million more than estimated and 415 million less than last year. Wheat stocks were 306 million, 31 million more than estimated and 150 million less than last year. Since June 1 is the beginning of the marketing year for wheat, that figure also should be the final ending stocks for '07/08, which is 52 million more than USDA's last estimate.

World wheat production estimates continue to climb, with the International Grains Council raising their estimate by 8 MMT to 658 MMT, still 4 below USDA's latest figure from the June 10 supply/demand report. As the growing season wraps up and harvest moves forward, most of the Northern Hemisphere has progressed under good conditions, and it is likely that those figures will continue to increase. Stats Canada released their acreage estimates last week, showing total wheat plantings at 25.1 million acres, up 16% from last year. Spring wheat was 16.4 million acres, up 8%, with durum at 6.1 million, up 26.7%.

Harvest here in the US has certainly had its delays, but appears to be moving swiftly along now. High heat has helped dry fields and crops in the central plains. The trade is closely monitoring the spread of scab in Kansas and Nebraska, with the resulting vomatoxin issues. The KCBT issued limits of 4 ppm of vomatoxin in deliverable wheat, while the millers and exporters only allow a limit of 2 ppm.

To date, harvest results have been mostly better than expected. Yields are running above average in most regions that had good weather, which would not be the far western plains where dry conditions persisted much of the season. While some of the wet regions saw test weights and proteins deteriorate, most areas are showing good results. The scab will likely steal some yields as the harvest moves north, but production is still expected to stay quite high. It is likely that wheat prices will continue to work lower on harvest pressure, particularly if corn prices can't recover.

The technical formation of corn shows a two-day island top (on the daily charts), which will be a formidable top unless prices can recover quickly. Wheat, too, is in a negative technical formation and will likely at least test the lows made last month.

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.

Wheat markets look like they're finally giving in to harvest pressure - after weeks of managing to rally during the early stages of harvest.

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