Pre-Opening Wheat Market Report for 4/20/2010

July wheat was 7 cents higher overnight. Weakness in the dollar and a bounce in metals and energy markets helped to support.

After an impressive technical break-out to the upside on Friday, the July wheat has already given back more than half of the April rally with the collapse yesterday. The rally in the US dollar during the November to March time frame made US wheat less competitive on the world market and a lack of supply issues from other key importers was seen as a bearish combination. However, the market saw a bounce off of the April 5th lows due to a record high net short position from fund traders and ideas that the market is just too cheap given an expanding world economy. The market may need to absorb more negative supply news with the weekly crop progress and condition reports.

The weekly winter wheat conditions report showed that 69% of the crop is now rated good/excellent compared to 65% last week and 43% last year. The 10 year average for this time of year is 49%. Crops rated poor to very poor were just 6% as compared with 21% as the 10-year average. The spring wheat planting report showed 20% of the crop is now planted compared to 6% last year and 16% as the 10-year average.

After pushing to the highest level since March 22nd on Friday, July wheat collapsed yesterday due to strength in the US dollar and weakness in other grain markets. A drop in open interest in the past week is seen as a factor which could mean that funds are covering short positions. Trend-following funds (non-commercial without CIT traders) held a net short position of 69,846 contracts as of April 13th.

Weekly export inspections came in at 17.7 million bushels which was in the range of trade expectations and very close to the weekly average necessary each week to reach the current USDA export forecast. Algeria is tendering to buy 50,000 tonnes of optional origin milling wheat. The Canadian Wheat Board indicated that the country is on track to export near 19 million tonnes of grain for the 2009/10 season which is up slightly from 18.7 million expected in March. Russia is in talks to sell 100,000 tonnes of grain and flour to Nicaragua. Iran is planning its first exports of wheat in three years with two million tonnes sold to Oman, Egypt and UAE.

Traders believe that if Argentina sees normal weather this season that the 2010/2011 wheat crop could be up near 13-15 million tonnes from 7.48 million last year.