Pre-Opening Wheat Market Report for 7/23/2010

December wheat was 1 3/4 cents lower overnight. The dollar was moderately lower.

Wheat remained the rally leader over corn and soybeans this week as reports of production shortfalls continued to come in from Europe, North Africa and possobly South America.

Russia’s agriculture minister said yesterday that the area ruined by the drought has jumped to 10 million hectares which is equivalent to the area of Portugal. She added that this is about 20% of Russia’s total crop area.

The German Farmers’ Association expects wheat yields in that country to fall by 10% to 20% below last year’s levels following a severe winter, a wet spring and a hot and dry summer. Adding to the negative production news were reports that recent rains have slowed wheat planting in Argentina.

The Buenos Aires Grains Exchange said yesterday that if rains continue, this year’s planted area could be lower than previously expected. Planting was 79% complete as of Thursday according to the exchange versus 99% at the same point last year when a drought reduced planted area to its lowest level in decades. The exchange says that, for now, it is keeping its planted area forecast unchanged at 4.2 million hectares.

On the positive side, Australia continues to expect favorable rains due to the La Nina effect in the southern Pacific, and hard red wheat yields in the US continue to come at or above expectations. Also, spring wheat conditions in the US are running well above last years pace at 82% good-to-excellent versus 73% at this point last year, and this may bring a substantial boost in the USDA’s next yield estimate. The latest estimate for 2010/11 US other spring wheat was 44.6 bushels per acre as compared to last year’s 45.1.

This week’s export sales came in near expectations but below the average total needed each week to reach the USDA’s export projection. Net sales came in at 382,100 tonnes. Sales need to average 431,000 tonnes each week to reach the USDA forecast.

In yesterday’s action, wheat posted a substantial gain versus corn today in moderately active trade by spreaders. Traders said that nervousness about the extent of crop losses in Europe, Canada and North Africa, generated steady, substantial buying by funds and commission houses which took the December contract to its highest level since December 2nd, 2009.