Pre-Opening Wheat Market Report for 7/21/2010

December wheat was 6 1/4 cents higher overnight. The dollar firmed later in the overnight session.

December wheat started the overnight session at marginally lower levels, before moving to a substantial gain later in the session. This came despite a firming trend in the dollar with traders said to be encouraged over another large wheat sale to North Africa this morning.

Traders report that Algeria has bought up to 300,000 tonnes of milling wheat for delivery in September. The sellers were not specified. This follows yesterday’s announced purchase by Egypt of 120,000 tonnes of wheat. Russia is maintaining its lock on the Egyptian wheat import market despite the ongoing drought in Russia.

In addition to the Egypt sale, Iraq reported on Monday that it had bought 350,000 tonnes of wheat from various sources including the US. Traders indicate that the strong demand response comes at substantially higher price levels, and this is considered a positive development.

The USDA will issue its weekly Export Sales report tomorrow morning, and traders will be looking to see if buyers of US wheat have also stepped up their purchases at higher price levels. The report will cover the week ending July 15th.

Traders will also be watching fund activity in the futures market in coming days. Trend-following funds have covered a substantial portion of their record large net short position in recent weeks, and the question now becomes whether these trading funds will now move to a net long position.

Hot and mostly dry conditions continue to stress spring-planted crops in Russia with only scattered showers expected in the region over the next 2-3 days. Forecasters indicate that the region is experiencing the worst drought in 40 years. This dates back to the years just prior to the USSR’s emergence as the world’s biggest grain buyer in 1972-73. In Australia, planting is winding down with recent showers helping to boost soil moisture