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

December wheat was 1 1/4 cents higher overnight. Deliveries against the July contract were 1,402 contracts with the total for the delivery period so far now at 9,821. The dollar index was modestly higher.

After retreating from its highs yesterday, December wheat traded at narrowly mixed levels overnight. Yesterday’s gains were credited in large part to fears of a worsening drought in Europe and Eurasia and with ideas that trend-following funds may continue to cover some of their very large net short position in wheat.

Australia is also experiencing a minor potential loss in production with South Australia’s latest state forecast showing a drop in production of 13% from last year. South Australia produces about 20% of the nation’s wheat crop. However, supplies of wheat are ample in the US and in the world as a whole, and US export sales in wheat eased last week after a few weeks of better sales during the first half of June.

This week’s Crop Progress report from the USDA showed the winter wheat harvest at 54% complete compared to 38% last week and 50% last year. Rains this week could slow harvesting somewhat in the central Plains. The 10 year average harvest progress for this time of year is 59%. The spring wheat crop is rated at 83% good/excellent compared to 84% last week and 72% last year. The 10 year average for this time of year is 67%.

Weather issues in Europe include a spreading dry region that extends from western Kazakhstan through the southern Urals and the Volga region of Russia and into eastern Ukraine. Lost acreage in Canada is also considered as ongoing support along with the huge net short position that is held by trend-following funds in wheat.

This week’s export inspections for wheat were 16.762 million bushels, down from just over 18 million last week. Inspections need to average 17.3 million each week to reach the USDA’s current export projection. Iraq’s Grain Board says that it has bought enough wheat to cover its needs for 2010, but that it intends to build up its wheat reserves. Last week they issued a new tender for 100,000 tonnes. Egypt announced a tender for at least 60,000 tonnes of wheat. Bangladesh is tendering to buy 50,000 tonnes of wheat. Rains in India have improved in the northern grain belt and pushed farther north this week.