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Louise Gartner: Wheat prices explode higher

07/30/2010 @ 11:00pm

Wheat put in its biggest gain for one month since 1973 during this past month of July, 2010. Traders finally became believers in the Russian drought and scrambled to exit shorts and get long the market, and in the process pushed wheat prices to new 13-month highs. 


The drought has intensified across Russia and spreading deep into Kazakhstan and into eastern Ukraine. Spring grains are all but shot across vast tracts of prime Russian growing regions, and production prospects are being slashed for virtually all of their spring planted crops. And of course, exports prospects from Russia, Kazakhstan and Ukraine are all also being slashed.


Rumors flew around the marketplace this week about Russia shutting down exports, or at least sharply curtailing them. I think it’s pretty safe to say that their exports will be down significantly, but they will do what they can to maintain their presence in the world market. The Russian government did announce that they would be releasing stocks into the domestic market, and it’s certainly possible that they will shut down exports at least temporarily to prevent those supplies from leaving the country. Ukraine did effectively shut off their wheat exports with new inspections rules this week.


The Canadian Wheat Board released their latest estimates, reducing wheat production just slightly from last month. Total wheat is estimated at 18.5 MMT, down just .5 MT from last month and 8 MMT from last year, a 30% decline. 


That paves the way for a major boost in US exports and we are in a prime position to take advantage of it. We have plentiful stocks of wheat, albeit not a lot of high quality wheat. We also have a currency that has declined against other currencies, especially the euro, making us all the more competitive. And, unlike Australia, we are a well-oiled exporting machine. Australia may plenty of bushels this coming year, but their fledgling independent grain export program has been slow to get up to speed. The announcement GrainCorp buying their rival AWB may improve that situation, but the US still will have the advantage.


Estimates of the increased export potential have reached as high as another 10 MMT, which equates to 360 million bushels. None of these numbers are in USDA’s books yet, which suggests that their latest carryout estimate of 1.09 billion bushels could realistically get shaved down to the 700 million bushel level, a much more price supportive number.

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Many misjudgments regarding wheat 08/01/2010 @ 8:21pm Two evaluation terms this year by 'analysts' and 'traders' help set up this situation. One was 'the world is awash in wheat'. After a combination or market misjudgments combined with 'normal production variation' [my term] we again find the markets being surprised. Define 'awash in wheat'. Wheat is the most global of grains in production and trade. Yes, the globe has a lot of wheat after a shocking shortage a few years ago. The key is, who has it, what is its class and condition, and is it available for global trade? The other issue is the amount of N American reserves. The massive opinion this year was that the US had burdensome and price depressing 'surpluses'. The opinion was naive and short sighted - as it is always. By definition we are always in surplus. By definition we are an exporter. Exporters must have surpluses to do business. Now that weather has intervened it is now inescapable that our 'surplus' is in fact a great opportunity. This is a normal set of circumstances. Just because futures are particularly insensitive to the 'future' doesn't make the current situation abnormal. In fact it is a norm. I've made fun of analysts who depend on myopic generalities about the market before. I get to continue the practice. Markets are made by physical conditions, not technical analysis of futures. When the day comes that physical is tied more closely to futures the paper trade will be a more reliable tool.

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