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Rich Nelson: Demand market

02/25/2011 @ 3:32pm

Wheat Commentary

Fundamental Support: Wheat rallied on strong exports and on the coat tails of the corn market which traded limit up at one time today. Weekly export sales came in today at 1.115 million tonnes. This was within the trade expected range of 500,000 – 1.3 million. Accumulated sales to date are 46% above a year ago. With Jordan, Bangladesh, Morocco, Iraq, and Saudi Arabia all in for various amounts of wheat, we expect the export pace to remain robust over the next few weeks. The USDA Outlook meeting released their full numbers yesterday. They are anticipating this year’s wheat production to be 128 million bushels lower than last year. This is despite total wheat acres being up 3.4 million this year. They are looking for the trend yield to come in at 43.8. This is down from last years 46.4. They are anticipating this years export sales to drop 150 million bushels and total use to be 2,345 compared to 2476 last year. The net effect is a bullish ending stock number of 663 million bushels. This is down 155 from last year and put the stocks to use at 28.3%. . USDA’s price outlook is for a cash average of $7.50. Assuming a $0.70 basis, that implies $8.20 July futures. That “average year” price is around 30 cents over today’s close.

Direction: With today’s trade, the May Chicago traded back above the 100 day MA, after testing and holding the long term uptrend support in the overnight market. Allendale believes the political unrest in the world will keep the world importers aggressive in covering their needs and this should help support the market. The weather aspect of the trade will get more important as the winter wheat crop comes out of dormancy. With the continued dryness in the U.S. Hard Wheat belt, spring rains will be a must to improve the condition of the crop. The government projecting the U.S ending stocks to fall this year by 155 million bushels, even with an increase of 3.387 million planted acres. The market will be nervous until the crop is in the bin. Any ideas that trend yield will not be attainable will be bullish. With this in mind, traders should continue to look to buy breaks in this market.

Working trades

  • (02/15) Bought Sep Minneapolis/sold Chicago 60, risk 50, objective 85. Closed 67 1/2.

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