July 11, 2006

 

US Wheat Outlook on Tuesday: 5-7 cents higher on declining crop conditions

 

 

Wheat futures are expected to open higher Tuesday following news that the hard red spring crop on the northern Plains continues to deteriorate from drought.

 

Adverse weather for corn and soybean crops also are causing higher calls in those markets, with strength expected across the entire CBOT grain floor.

 

In overnight trade basis September contracts, Chicago Board of Trade wheat rose 6 3/4 cents to US$4.09 3/4, Kansas City Board of Trade was up 7 1/2 cents at US$5.18 3/4 and Minneapolis Grain Exchange climbed 8 1/4 cents to US$5.29 a bushel - a new contract high.

 

Spring wheat in poor-to-very-poor condition increased to 27% in the week to July 9, from 20% the previous week. Conversely, the percentage of the crop in good-to-excellent condition fell to 42%, from 52% the previous week.

 

The data confirms that drought continues to deteriorate the wheat crop, which is now 87% headed across the six producing states. This is a critical time of development for the plant in which yields are determined, a trader said.

 

The No. 1 HRS producing state of North Dakota has 29% of its crop in poor-to very-poor condition, compared to 19% the previous week. Just 39% of the crop is good to excellent, down from 53% the previous week, the USDA said.

 

Topsoil moisture in North Dakota was 31% very short, 45% short and 24% adequate, compared to the five-year averages of 6% very short, 14% short, 68% adequate and 12% surplus. Subsoil moisture was 21% very short, 41% short, 37% adequate and just 1% surplus.

 

The U.S. winter wheat crop, meanwhile, was 72% harvested as of July 9, versus 65% the previous week and up from the 66% five-year average. Illinois is 95% complete, Indiana is 70% cut and Ohio is just 20% harvested.

 

Weather forecasts this week suggest further stress for the northern Plains HRS crop. Mostly dry conditions are seen at least through Saturday, with high temperatures reach 104 Fahrenheit, the DTN Meteorlogix weather service said.

 

The market's attention will soon turn to Wednesday's release of the USDA's July crop production and supply/demand tables. Traders will be anxious to see the first HRS and durum production estimates of the 2006-07 season, though many say the spring wheat number will likely be dated as soon as it hits the wires because weather and crop conditions have declined so much in the last three weeks.

 

Traders and analysts in a Dow Jones Newswires survey pegged the other spring wheat crop at an average 496 million bushels, down from last year's production of 504 million bushels.

 

The U.S. winter wheat crop is pegged at 1.251 billion bushels, down from 1.264 billion in June. Durum wheat production is seen at 72 million bushels, versus 101 million last year.

 

Meanwhile, 78 delivery notices were posted against CBOT July wheat; Dowd Wescott stopped 75 of them.

 

At the KCBT, 10 notices were posted, and J.P. Morgan stopped them. Five delivery notices were posted at the MGE.

 

In news, Australia's wheat crops are reaching a critical point and need several good rains in order to produce good yields at harvest, the chairman of the South Australian Farmers Federation said Tuesday. Farmers like to see good rains in July and August to build soil moisture levels ahead of the drier spring months.

 

World wheat prices are expected to continue rising this year, an official with Australian wheat exporter AWB Ltd. said Tuesday. The AWB feels that world wheat prices are "moving onto a firmer basis as we move towards 2007," an AWB manager said.

 

Iraq has rejected Australian officials' investigation of a shooting and killing of an Iraqi minister's bodyguard and the wounding of three others. The Australian government had cleared its troops last week of wrongdoing in the case. The incident has caused Iraq to suspend its wheat trade with Australia.

 

In export news, Japan seeks 103,000 metric tonnes of wheat in a Thursday tender, of which 60,000 tonnes is U.S. origin. The other 43,000 tonnes are divided between Canada and Australia. It is also seeking 2,000 tonnes of Australian-origin barley in the same tender. The commodities are scheduled for Sept. 1-30 shipment.