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NEAR-TERM MARKET FUNDAMENTALS: Wheat starts the day under the influence of weaker outside markets, but traders indicate that the market has a firmer tone compared to soybeans and corn. One trader said that specs have not established long positions in wheat to the same degree as soybeans in recent days and weeks and this has resulted in less selling pressure ahead of tomorrow’s USDA reports.
Traders are expecting a small drop in US wheat ending stocks for 2008/09. The USDA will also release its first estimate of 2009/10 production tomorrow with traders expecting a decline of near 18% from last year due to lower acreage for soft red winter wheat and poor weather in the southern Plains in recent months. Ideas that total wheat production may slip near 400 million bushels from last year’s total wheat crop of 2.5 billion helped to spark the strong gains on Friday as well which pushed July wheat to the highest level since early February. Traders see winter wheat production coming in about 340 million bushels below the 2008 level of 1.868 billion bushels. The market also found support from news that Canadian wheat stocks as of March 31st came in at 15.5 million tonnes as compared with 16.7 million expected by the trade. While well below trade expectations, stocks were still up 35.6% from last year.
Weather was mainly dry over the weekend in the northern Plains of the US and adjacent areas of the Canadian Prairie with the exception of scattered showers and thunderstorms in South Dakota late in the weekend, and scattered showers and thunderstorms in North Dakota and the SE Canadian Prairie overnight. Mostly dry weather is expected in the northern US Plains through Friday which should help to advance planting progress for spring wheat. Scattered showers have provided some very light relief in a few areas of the drought-stricken wheat belt in Argentina, but conditions there remain very dry overall at the start of the planting season, and virtually all areas are said to need substantially more rainfall in coming weeks.
The Commitments of Traders Report for the week ending May 5th showed that index funds were net sellers of 3,355 contracts while trend-following funds were net buyers of a very large 13,825. The net short position held by trend-followers has dropped about 15,000 contracts over the past two weeks from a record large net short position of 44,862. Russia reports that wheat exports to countries outside of the former Soviet Union were 3.13 million tonnes during the first three months of 2009 versus just 1.02 million last year. An official in Syria said today that his country expects a good wheat harvest this year with 3-4 million tonnes likely. This follows one of that country’s worst wheat harvests on record last year which temporarily turned Syria from a wheat exporter to a wheat importer. A milling industry spokesman in Morocco said today that his country is expected to import 1.5 million tonnes of soft wheat and 600,000 tonnes of durum in 2009.
CASH NEWS AND TENDERS: Basis levels finished the week on a steady note at the Gulf last week, but some eastern Midwest points finished weaker. Iraq and Jordan are tendering for wheat.
WEATHER: The northern Plains were mainly dry over the weekend with the exception of scattered showers and thunderstorms in South Dakota and some overnight rains in North Dakota. The southern Plains should see rain today and tomorrow with rains in the NE Plains on Wednesday. Scattered rains are then expected across much of the Plains on Friday and Saturday. The weekend saw scattered showers and thunderstorms across the northern tier of the Midwest with amounts ranging up to just 1/2 inch. The southern Midwest also saw scattered showers and thunderstorms, but amounts were heavier, ranging from 1/4 to 1 1/4 inches. Today and tomorrow are expected to be dry in most areas with the exceptions of some light showers in the east today and in the west and NW tonight and tomorrow. Wednesday may see scattered showers and thunderstorms across the region with drier conditions returning to the central and northern corn and soybean belts on Thursday and Friday. Temperatures are expected to be on the cool side to start the week, shifting to normal-to-above-normal on Wednesday through Friday.
TODAY’S GUIDANCE: A 50% correction of the Jan-March break leaves key resistance at 590 1/2 for July wheat. The market is currently pricing in a tighter than expected supply for the coming year. Outside market forces are negative today and could spark some selling pressure with support back at the 579 1/2 to 571 1/2 zone. A move over 593 leaves 609 as next resistance. Both December Minneapolis and Kansas City wheat hit upside targets on Friday so wait for a corrective break before entry.
