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Early yields are disappointing

The wheat market showed no sign of breaking down last week even as the weather improved, harvest loomed and corn and beans faltered.

Normally, this time of year we see wheat prices buckle under the weight of harvest pressure, but it's becoming apparent that this year's harvest pressure won't live up to it's reputation.

When the rains finally abated the combines were quick to hit the fields, only to find disappointing yields and the feared loss of quality because of those rains. The frost from early April has again reared its ugly head as heads turn up empty, and the persistent rains throughout the growing season lent their hand to disease issues and flattened wheat, making harvest much more difficult. The rains also produced light test weights and lower protein for much of the early harvested wheat.

So, just when the wheat complex was readying itself for a round of price pressure, prices did just the opposite and pushed back to contract highs in the Kansas City futures, pulling Chicago and a very reluctant Minneapolis higher as well. Obviously, if yields continue to be disappointing, we can expect that prices will also continue to push higher.

Adding to the bullish enthusiasm was the continued stress on wheat crops in Ukraine and Russia. Even though rains have fallen in the Ukraine and are forecast for Russia, the crop is advancing quickly and the rains are coming too late for much of the crop. European prices have responded by pushing into new highs, adding an underlying level of support for US prices as well. The Ukraine Ag ministry revised their wheat production estimates to 15.3 MMT, down 2.4 MMT from their last estimate but still up 1.3 MMT over last year.

The Ukraine government did their best to confuse the market last week with conflicting announcements about exports. The previous week, they announced that they would lift the export ban and allow up to 400 TMT of exports during June and July. This week, they initially said that all exports would be banned because of the production problems, and then later in the week announced that they would still allow the old crop exports through June, but not for any new crop. Bottom line, old crop stocks can go, but not new crop.

India weighed in last week with some bullish news. After rejecting all bids just two weeks ago for 1 MMT tender because prices were too high, they announced that they would be importing up to 5 MMT from August through December to replenish government stocks. I guess it's their prerogative to change their minds… With Ukraine and Russian wheat in jeopardy, they well could come to the market more aggressively and earlier than expected.

Demand has been robust to start the new marketing year, which began on June 1, with export sales off to their second best start in 11 years. The prospect of greatly reduced Black Sea exports has already stoked the export fires for the US, with importers nervously watching the drought in the CIS and the harvest problems in the US.

The crop report issued Monday morning contained few surprises, with total winter wheat production projected to be 1.61 billion bushels, just 6 million less than last month. Total wheat production was down by the same amount at 2.168 billion bushels. Exports were increased by 25 million in response to lower Ukraine and Russian production, which were each lowered by 3.5 MMT. Their exports were lowered 3 MMT and 2 MMT respectively. US wheat ending stocks were lowered by 26 million bushels, with world ending stocks down 1.3 MMT. Corn ending stocks were increased 50 million due to a drop in '06/07 exports by the same amount and soybean ending stocks were left unchanged.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

The wheat market showed no sign of breaking down last week even as the weather improved, harvest loomed and corn and beans faltered.

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