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NEAR-TERM MARKET FUNDAMENTALS: Wheat saw continued selling overnight with Chicago, KC and Minneapolis all trading substantially lower. Traders said that this came mainly on further gains by the dollar overnight as well as ideas that buying by funds may have run its course in wheat for the time being. The USDA will issue Supply/Demand and US Crop Production Reports on Wednesday and these reports are expected to show unchanged to fractionally higher world production numbers for wheat in 2009/10 season despite ideas that acreage numbers have dropped in Argentina over the past 1-2 weeks due to drought. Traders are also looking for a lower world trade number for wheat in 2009/10 in line with recent estimates by the UN’s Food and Agriculture Organization and others. Traders are looking for US ending stocks to be near unchanged for 08/09 with 2009/10 ending stocks down by about 35 million bushels from last month to about 600 to 610 million. (June 1st marks the start of the 2009/10 crop marketing year in wheat.) Some soft red wheat areas have seen scattered dry spells in recent days. Mostly dry weather is also expected this week after a round of showers and thunderstorms in the north central and SW soft red wheat belt pass through today. More dry weather would be welcome as harvest gets underway in the southern soft red belt. The Commitments of Traders for the week ending June 2nd showed substantial net buying by funds. Index funds were net buyers of 5,934 contracts while trend-following funds were net buyers of 7,907. This reduces the trend-followers’ net short position to just 6,793 contracts from an all-time high net short position of over 44,000 contracts on 4/21/09.
WEATHER: The past three days saw showers and thunderstorms across Minnesota, Iowa, Wisconsin and northern Illinois. Amounts were from 1/4 to 1 1/4 inches. Other areas of the corn and soybean belt saw scattered showers to mostly dry conditions. Showers and thunderstorms are expected again in the NW and northern corn and soybean belt today as well as in Missouri with amounts of generally up to 1 inch. This system is expected to migrate mostly south and east over the course of the week bringing scattered showers. However, Friday through Sunday should bring a welcome dry spell to much of the Midwest. Rains are expected in the NE half of North Dakota, slowing planting progress in the NE quadrant of that state where farmers are doing the latest planting of spring wheat. After that, dry weather is expected through the end of the weekend.
TODAY’S GUIDANCE: Negative signals from outside markets helped push wheat sharply lower overnight. This comes after a sharp rally in wheat from late April through the end of May that coincided with heavy short-covering activity by trend-following funds. This was sparked in large part by a sharp drop in the dollar, but all of these trends may be nearing an end and that may be bringing the weak world supply and demand fundamentals back to the forefront. Importers showed last week that they will buy on a sharp break. Unfortunately, breaks in wheat need to outpace rallies in the dollar in order for this to happen, and that is not the case so far this morning. If this remains the case, and if weather remains mostly dry in major growing areas, then harvest pressure and a possible resumption of selling by funds will keep the pressure on in wheat. First support is at 604 3/4 in the July contract with further support near 591. Resistance is at 625, 635 and 646.
