Pre-Opening Wheat Market Report for 7/9/2010

December wheat was 5 cents lower overnight. Outside markets were mixed. Deliveries against the July contract were 1,307 contracts, bringing the total for the delivery period to 12,459.

December wheat posted its 6th straight higher close yesterday before retreating overnight. Yesterday’s rally took the December contract to its highest level since January 15th. Traders credit the rally of more than 90 cents mainly to drought in Russia and neighboring wheat producing areas, although the earlier loss of acreage in Canada and continued unfavorable conditions there in recent weeks are also supportive.

A top Russian official estimates that the grain on some one fifth of this year’s planted area has been destroyed by drought. The area sown is estimated at just 44.3 million hectares versus 47.55 million last year. Drought is also affecting adjacent grain areas in eastern Ukraine and western Kazakhstan. Canada also reported diminished crop prospects yesterday. Their agriculture department lowered acreage due to the spring floods and also indicated that wet and cool conditions since planting time should result in lower yields. Canada is a major exporter of high protein wheat similar to that traded in Minneapolis.

The USDA will issue its July Crop Production and supply and demand reports for wheat this morning. Traders are looking for all-wheat production to be up by nearly 100 million bushels from 2.067 billion in June. Soft red winter (Chicago) wheat production is expected to show a small decline. 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 and yield due to excessive rains.

The USDA will also issue its latest weekly Export Sales report this morning. Traders are looking for a total near last week’s 418,400 tonnes, which could be in excess of the 372,900 tonne pace needed each week to reach the USDA’s current export projection. If so, this would be the fourth week in a row that sales have exceeded the average pace needed.