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Wheat tests harvest lows

Wheat showed some signs of life this week, trading in choppy action after testing the July harvest lows. Spring wheat harvest and heavy farmer selling have kept the pressure on this market, despite continued hot and dry conditions not only here in the US, but also in other major world growing regions.

For the near term, I think it will be difficult to sustain rallies in the wheat complex because of the continued spring wheat harvest, but also because of the pressure spilling over from corn and beans. The row crops have not been able to maintain upside momentum despite the intense heat in the western Midwest. Excellent growing conditions in the eastern Midwest have the market thinking that good yields there will offset the loss in the west.

The drop in price over the last few weeks has spurred export business, with sales this week better than expected at 580,000 MT. While the sales pace is behind last year, which would be expected, it's still at an aggressive enough pace where we may have to do more rationing as we get into the heart of our demand season this fall. In addition, spring markets could get really volatile as stocks become their tightest before the new crop comes in.

Speaking of the new crop, we're about a month away from the seeding season in the southern and central plains and soil conditions are little improved from the drought experienced all year long. Obviously, there is plenty of time for rains to come and create better planting conditions, but with temps over 100 almost every day, those rains will need to be abundant and timely with at least some break in the intense heat.

In contrast, soil conditions for soft red winter wheat are generally in good shape. With the price relationship between corn and wheat, we could see another increase in soft wheat acres, something we really don't need. The spreads between KC and Chicago have narrowed significantly over the last few weeks; but this week, we saw the new crop July contracts jump 8 cents in favor of KC in just two days. It appears that some are taking note of these fundamentals, waiting for rains in the plains to prove them wrong.

Taking a look at other major wheat producers, we see Canada reporting a decline in wheat production, which was expected; and the trade generally believes we'll see more reductions over time. In the EU, we see wheat import registrations exceeding their quotas, suggesting concerns within the EU about adequate supplies after this intense heat wave during the wheat filling stage. In the CIS (former Soviet States), heavy rains are stalling harvest progress and beginning to threaten wheat quality.

Argentina has finally received much needed rains in their wheat areas, giving planted wheat a boost, but delaying late seeding. Australia also received rains in the minor wheat areas, but the major producing region of Western Australia is still very dry. And in China, one of the few major producers to have a good crop this year, burdensome wheat stocks are flooding private storage facilities, pressuring cash prices below government support prices and forcing those private businesses into a non-profitable position.

The technicals for wheat look like we may have found some support at this week's lows, as so far we have a double bottom off of the July harvest lows at 4.77 basis KC September. The next support would show at the trough of 4.75, followed by the June low of 4.665. Look for resistance in KC Sep at Monday's high of 4.94, then the trough of 5.005 and then the swing high of 5.15. In Chicago Sep, look for support at the trough of 3.91, followed by the July low of 3.80 and then the June low of 3.74. Look for resistance at the swing high of 4.055, followed by the next major swing high of 4.14.

Wheat showed some signs of life this week, trading in choppy action after testing the July harvest lows. Spring wheat harvest and heavy farmer selling have kept the pressure on this market, despite continued hot and dry conditions not only here in the US, but also in other major world growing regions.

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