Pre-Opening Wheat Market Report for 4/7/2010

July wheat was 3 3/4 cents lower overnight. The dollar index was narrowly mixed to higher.

Wheat led the grain markets higher yesterday, although the July contract backed off from its highs later in the session and prices then sold off to moderately lower levels overnight. Traders said that the rally was based on short covering at a time when trend-following funds are holding a record large net short position in wheat.

One analyst said that Iraq’s big wheat purchase yesterday may have started a chain reaction in various wheat markets to start the rally, although most of the Iraqi purchase was of non-US origin. Yesterday’s rally took the July contract back near the high end of the range seen on March 31st. This was the day that the USDA released its latest quarterly stocks and planting intentions reports. Those reports were considered negative and they helped push the wheat market to new contract lows.

The rally came despite a higher dollar and a Crop Progress report from the USDA which showed the US winter wheat crop with a very high good to excellent rating. Weather forecasts call for unwelcome moisture across virtually all of the soft red wheat belt today and tomorrow with the heaviest amounts expected in the northern Delta, the SE, part of the mid south and from Illinois through Ohio. This is expected to be followed by warmer and dry conditions in virtually all soft red wheat areas starting late this week and into Saturday and lasting at least through Tuesday of next week. That weather will be very welcome.

Hard red winter wheat areas will see drier conditions over the short term in comparison to the Midwest with the next system of heavy rains developing across much of the Plains on Tuesday. Traders report that Saudi Arabia is tendering for 550,000 tonnes of milling wheat. This follows yesterday’s announcement that Iraq had bought 500,000 tonnes of wheat with a small portion of that said to consist of US hard red winter wheat.