Pre-Opening Wheat Market Report for 7/2/2010

December wheat was 1 3/4 cents lower overnight. Deliveries against the July contract were 1,755 contracts with the total for the delivery period so far at 7,040. The dollar index was modestly lower.

The December wheat contract rallied to just under its 100-day moving average yesterday and then remained just below yesterday’s highs overnight. This follows strong gains on Wednesday and Thursday that were credited to short covering. Traders indicate that the rally was sparked by very bullish corn reports from the USDA, although the USDA’s wheat data were negative for both stocks and planted acreage.

A number of traders and analysts indicate that the heavily net short position held by trend-following funds may have been a major factor in the short covering strength. Those traders held a net short position of nearly 67,000 contracts as of the latest Commitments of Traders report which is the largest net short position held by these traders in any agricultural commodity market. Wheat also posted gains against KC and Minneapolis wheat yesterday on short covering by traders on the Chicago side.

Weather forecasts call for continued dry weather across the central and northern Plains and Midwest into tomorrow which would be beneficial to harvesters. Light to moderate rains are expected to move into the central Plains on Sunday, becoming heavier on Monday as they expand into the western Midwest. More general rains are then expected in the Midwest over the course of next week.

This week’s export sales in wheat were in line with trade expectations.