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Bullish U.S. hard red winter wheat market seen in spring

Looking at U.S. and world prospects for dry weather and tight supplies of protein and dry mill classed wheat, a bullish outlook could be developing, sending prices in late spring and summer as high as $3.80 per bushel, according to one wheat analyst.

Already this year growers were able to contract new-crop wheat at levels close to $4.00 per bushel, but this year's prices late into the growing season could provide good marketing opportunities.

In the past, growers of hard red winter (HRW) wheat tended to sell half of their crop off the combine, while hard red spring (HRS) wheat growers store more of their crop.

With the majority of the U.S. HRW wheat crop harvested during June and July, and HRS during August, growers should watch for weather-driven market peaks in April and May.

Mike Krueger, World Prospectives, Inc., said the focus is on HRW wheat. As the HRW wheat market goes so goes the U.S. wheat market, Krueger said.

"The HRW wheat market is important for the domestic milling and hard red spring (HRS) wheat. Plus, I think the world is short of protein wheats with the Canadian wheat crop low on protein for the second year in a row, and the Australian crop was big last year but protein quality was lower than normal," Krueger said.

In addition, wheat growers in the Ukraine and Russia didn't get as many acres planted this year as they planned because of dry fall planting conditions.

"I think the world wheat supplies will be down by 10 million metric tons compared to a year ago," Krueger said. "It will come down to the same thing. It seems like we'll have adequate supplies of soft wheat in the world, but supplies of hard wheats, protein and milling wheats are going to be relatively tight."

USDA, in its January wheat seedings report, estimated just 1% fewer HRW wheat acres than a year ago. The next look at wheat acres will come when the USDA March Prospective Planting report is released. There could be even fewer HRW acres in March, Krueger said.

Secondly, dry weather in about 30 % of the HRW wheat belt of Oklahoma, Texas, and parts of Colorado and Nebraska, caused poor stands, development and ratings.

"Unless rains show up in April, I think the odds of having a good HRW wheat crop equivalent to last year are not favorable," Krueger said. "This year's crop will be smaller than last year. So, I think that is a friendly fundamental in this marketplace. Plus, with more farmers switching to corn or soybeans, it sure looks like the HRS wheat acres in the Dakotas and Minnesota will be down."

Though U.S. SRW wheat acres are estimated at 19% higher than a year ago, the problem of little domestic interest and poor exports leaves that crop with no 'home', Krueger said.

With the U.S. industry relying on exporting 40%-45% of its wheat crop, there are positive signals showing up for the 2005/2006 marketing year as Nigeria becomes the new No.1 customer with annual purchases of one million-plus metric tons in the past few years.

"Nigeria buys almost all HRW wheat. And they have nearly doubled the amount of wheat they buy from the U.S. in the last two years," Krueger said.

Meanwhile, Louise Gartner, Spectrum Commodities wheat analyst, said that growers should keep in mind weather problems, yield declines, production losses, and tight supplies long before the combines hit the wheat fields.

"This year is similar to 1996 when we had record tight supplies and there was poor spring weather and the market was rallying, rallying. That year, the market peaked on April 30," Gartner said.

Gartner's marketing tips for a rallying wheat market:

If a bull market materializes due to drought, prices often rally beyond logical levels well before harvest and selling those extremes is advised..

If you think the bullish market will continue past harvest, buy call options to replace cash sales. This gives you the opportunity to participate in an uptrending market.

Often times, during weather markets, the futures price will move sharply higher but the basis will weaken because the cash market isn't as strong. In those cases, consider a fixed futures contract or outright selling the futures market on the extreme futures price moves, and then wait for the basis to recover before selling it to complete the cash sale.

Looking at U.S. and world prospects for dry weather and tight supplies of protein and dry mill classed wheat, a bullish outlook could be developing, sending prices in late spring and summer as high as $3.80 per bushel, according to one wheat analyst.

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