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Wheat stumbles, but still holding

Agriculture.com Staff 07/09/2007 @ 9:45am

Following the breathtaking key reversal from June 29, wheat did get some short-lived follow through selling, only to find itself with an upward gap late this week and little sign of additional selling pressure.

The sellers are definitely there to take advantage of chart-based sell formations, but they just can't seem to gather downward momentum. Even with the harvest finally reaching some good yields and quality, and the pipeline filling up, the pent up demand has been very impressive to say the least.

For those buyers who typically buy during harvest when supplies are usually plentiful and prices low, they've been caught in a major squeeze this year. The harvest supplies and price declines never materialized, and they couldn't hold off any longer as they jumped at even slight price breaks to make purchases.

This explains why export business has not only been brisk, but far above trade expectations over the last few weeks. It's nothing short of impressive the way demand has been so strong at $6 wheat.

Spring wheat is quickly becoming the trade's focus of attention. With a surprisingly low acreage both here in the US and Canada, it's no secret that the wheat market needs all the spring wheat it can get- and for it to remain in good shape. As 100 degree temps roll over the Northern Plains, one can expect that yields will wither; assuming hail doesn't get it before harvest.

Informa issued their production estimates on Friday, showing the expected drop in wheat production and rise in corn. Total winter wheat was estimated to be 1.583 billion bushels, down 103 million from their last estimate. Hard red winter was estimated at 989 million, down 106 million; soft red winter was 359, up 6; and hard red spring was 484, down 35 from their previous estimate. Corn production was estimated to 13.375 billion bushels with a yield of 156.6; USDA currently has corn pegged at 12.46 billion with a yield of 150.3. Soybean production was projected to be 2.719 billion bushels with a yield of 43.0; USDA is currently at 2.745 billion with a yield of 41.5. USDA will release their latest production estimates on Thursday in their monthly supply/demand report.

So what do we make of this $6 plus wheat market? A market that has chopped and surged its way to 11-year highs, with the all-time highs of $7 plus already in its crosshairs? Is the key reversal from last Friday the final gasp, or does it have more energy in it? The bears can't seem to grab hold of this market and shake it loose. The bulls are seemingly a bit tired, and of course need to be fed every day, but clearly aren't giving up just yet.

As the fundamental picture for wheat is no doubt very positive, we do recognize that better harvests are likely on the way in the Northern Hemisphere. Heaven help us if any of those harvests run into even slight problems; it would be pretty easy for wheat to reach those 1996 highs. My guess is that we'll see a trading range develop between the lows of this week and the contract highs until we see what our spring wheat harvest brings. Even then, I would think that prices won't break hard until we see what the Southern Hemisphere crop turns out to be, which isn't until late fall.

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