Pre-Opening Wheat Market Report for 7/19/2010

December wheat was 4 cents overnight. Outside markets were mostly neutral.

The wheat market continues to find support from lower production forecasts outside the US along with a burst of import buying to start the week. Traders said that this helped wheat to post a modest gain overnight in the face of substantial selling in corn and a lower soybean market. This left the December contract near last week’s highs with the wheat/corn spread also near its recent highs in the December contracts.

India posted a slight reduction in its 2009 wheat crop to 80.71 million tonnes versus a previous estimate of 80.98 million. While this is a minor reduction, it is the latest in a long list of countries that have reduced crop estimates in wheat, and one analyst notes that traders are nervous that the trend will continue.

Iraq bought 350,000 tonnes of wheat from various origins including Russia, Canada, Romania and the US. A private buyer in Israel is tendering to buy 24,000 tonnes of feed wheat.

Very hot weather in the US hard red winter wheat belt may have brought some last minute stress to that crop prior to harvest, but traders do not expect this to be a major issue. The hottest temperatures have been in the western portion of the central and south central Plains. So far, they have remained south of major spring wheat areas and this is expected to continue this week with temperatures in that region staying mainly in the 80s.

Growing areas in Canada to the north remain cooler with excess soil moisture and cool temperatures thought to be adding to the risk of disease there. Sources indicate that warmer temperatures are needed, but they are not expected this week, at least not on a sustained basis. Some increase is possible later in the week, but the big surge of very hot air that is expected on Friday is expected to push to the east, into the north central Midwest, missing the Canadian Prairies. Forecasters then call for cool air to push south into the weekend which would further reduce temperatures on the Canadian Prairies.

The Commitments of Traders report for the week ending July 13th showed more net buying by funds. Trend-followers were net buyers of 17,124 contracts to reduce their net short position to 36,592. This is less than half the size of their net short position in wheat just a few weeks ago. These traders were also large net buyers of 16,032 contracts in KC wheat. Index funds were net buyers of 2,377 contracts.