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Wheat surges on bullish report

Grain markets spent much of the week continuing to get squashed but regained all of the losses on Friday after USDA’s bullish stocks report. The fears of a bearish report were quickly quelled as the numbers caught the trade by surprise.

In the stocks report, USDA reported wheat supplies as of September 1 at 2.104 billion bushels, down 2% from last year and 174 million less than the trade was expecting. The estimated feed usage from June-August was 435 million bushels, up 27% from last year and far above the average 241 million.

Corn and soybeans stocks as of September 1 are also the estimated ending stocks for the 2011/12 marketing year. Corn stocks were the biggest surprise at only 988 million bushels, 125 million less than estimates and down 12% from last year. This would be the first time ending stocks dipped below 1 billion bushels in eight years. Feed usage was much higher than expected, even though the total usage from June through August of 2.16 billion bushels is down 15% from last year.

Soybean stocks of 169 million bushels were 38 million higher than estimates but still down 21% from last year. The higher than expected ending stocks estimate stemmed largely from an increase in old crop production on higher planted and harvested acres. Usage from June through August was up 23% over last year, keeping stocks generally tight. 

The small grain summary was very close to trade estimates with all wheat production at 2.269 billion bushels. Spring wheat was 507 million, 35 million higher than estimated. Winter wheat production was 33 million lower than estimated at 1.645 billion bushels. 

The corn and wheat markets surged higher immediately following the report in typical volatile action with corn locking limit shortly after the open. Soybeans lingered for awhile before deciding to join the party, but also closed strong for the day.

The chart formations strongly suggest major lows are now in place in all three markets. Wheat should at least test the high end of the trading range at 9.50 Chicago Dec, and has a good chance at reaching the first target of 10.13, and then the final target of 10.50. With corn and soybeans at a record pace for harvest, pressure should quickly abate there as well.

Other than adjusting to the fresh statistics for the three major crops, the other two major stories for wheat continue to be the weather in Australia and the US, and questions out of Russia as to their ability to fulfill their export commitments. Most of Russia’s export sales are for delivery in mid October through late November so we should know the answer soon.

World demand appears to be stepping up as well. This week, reports showed that Iran had purchased up to 1 MMT of wheat over the last two weeks, some of it coming from Russia. Algeria bought 700,000, though to be from the EU (normally France). Egypt bought another 300,000 - 180,000 from France and 120,000 from Romania. Russian offers were well above the sales price, suggesting that they are no longer going to be competitive. 

Australia continues to see mostly dry conditions, and with each passing day the losses become irreversible. Most production estimates are dipping below 20 MMT, far below last year’s record 29 MMT. Argentina is looking at very good growing conditions, and on track for good yields but planted acres were down 20%.

Seasonal tendencies are for wheat to put in highs in early October, before heading lower into year’s end as the Southern Hemisphere’s harvest hits the pipeline. With today’s strong surge higher, we’re on track to put in that final leg up in wheat – and other grains – into that time window. If we do get that next leg up, it should present an excellent opportunity to sell old and new crop wheat. 

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