Pre-Opening Wheat Market Report for 7/8/2010

December wheat was 1/2 cent higher overnight. The dollar index was mixed to higher. Deliveries against the July contract were 1,331 contracts, bringing the total for the delivery period to 11,152.

Fund buying and weather concerns in Europe and the Black Sea region continue to support the wheat market according to traders. December wheat posted another sharp gain yesterday, taking that contract to its highest level since March 4th. This was also the highest close since March 3rd and the fifth straight higher close in December wheat which has posted an overall gain near 75 cents over this brief stretch.

Traders continue to point to weather in the Black Sea region as a major factor behind the rally along with the fact that trend-following (managed) fund traders remained very heavily net short as of the most recent Commitments of Traders report. Weather in Ukraine is mixed with heavy rains in the south which have forced farmers to suspend wheat harvesting, and an official with Agriculture Ministry suggests that the spring grain crop could fall by 20%. This includes wheat and barley. This contrasts with dry and hot weather that is affecting an area from eastern Ukraine through much of Russia and into western Kazakhstan.

The USDA will release its July Crop Production and supply and demand reports tomorrow along with this week’s Export Sales report. Traders are looking for the USDA to raise its all-wheat production estimate by nearly 100 million bushels from 2.067 billion in June. Soft red winter (Chicago) wheat production is expected to show a small decline. Ending stocks for 2009/10 will be adjusted to reflect the June 30th Grain Stocks report. Traders are uncertain as to whether this will result in higher ending stocks for 2010/11 or whether the USDA will increase its export estimate to reflect recent production losses in Russia and the Black Sea region. There should also be a reduction in the USDA’s production number for Canada which has not been fully adjusted yet to reflect this year’s loss of planted area due to excessive rains. In addition, Romania reports that its wheat production could fall by 10% due to recent flooding.

Egypt reported yesterday that it bought 60,000 tonnes of wheat from Russia for delivery in early August.