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Louise Gartner: Downward revision

02/28/2011 @ 7:54am

After a tumultuous couple of weeks, wheat seemed to find a lifeline about mid-week that stopped the bleeding and set the stage for reversal back up. However, after a $1.50+ meltdown in the span of seven trading sessions, the technical damage is deep.

Turmoil in the Middle East is certainly partly to blame, but you can’t ignore the huge spec longs in wheat, corn and beans that also contributed to the flush of selling in the grain complex. According to the Commitment of Traders report, their net long wheat positions were quickly reversed and now large specs are net short again, a position they’ve always seemed to be more comfortable with anyway. 

China also added to the negative sentiment as they gave daily updates on the drought status of their winter wheat crop. It seems between recent rains and irrigation, the drought area has declined by 25% in the last two weeks, and their crop watchers are saying that, for now, the wheat looks fine. Wow, it wasn’t even a month ago when many were already writing off that crop and predicting major wheat imports for China. So much for drought damage when the crop is dormant.

It was very interesting to note that in one of their daily reports, China actually stated that even with a decline in production this year that potential imports would be minimal as they had at least one year’s production in carryover stocks. Really? USDA has China’s ending stocks at 60 MMT, just over half of last year’s production of 114 MMT. As usual, with China, you just never really know. 

On the positive side, the sharp drop in prices over the last couple of weeks certainly stoked demand. Export sales were a solid 1.1 MMT, just over the high end of expectations. Corn also had stellar sales at 1.6 MMT, much above the range of estimates. Soybeans couldn’t even make the low end of expectations with a paltry 252 TMT. Most of the Chinese soybean business has shifted to South America where harvest is in full swing. 

USDA added some spice to the markets this week with the annual Ag Outlook Forum on Thursday and Friday. They confirmed the acreage numbers that were suggested a couple of weeks ago, projecting a 10 million acre increase in total plantings, the second highest jump in plantings, second only to the 15 million acre increase in 1996. Wheat plantings are expected to be up 3.4 million at 57 million. Total production is projected to be 2.08 billion bushels, down 128 million from last year. Ending stocks are projected at 663 million, down 155 million. 

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