The wheat market has outgained corn and beans measurably over the past month. This occurred as wheat's buying came from two fronts:

1) New buyers entering long off world production problems on summer spring wheat crops

2) Large trend-following funds placing buy orders for 50 thousand of the 77 thousand short contracts that they held 6 weeks ago

So a combination of shorts buying out and new longs entering the market created an astounding 3.10 cent rally in the past six weeks.

DROUGHT DRIVING PRICES

The short covering or the buying back of short contracts came as Canada announced its wheat crop would see 19 percent less plantings. The European 27 nations, known as the European Union, are in the grips of drought-like conditions. In addition, No. 3 world wheat exporter Russian is experiencing its worst drought in a century.

These summer world wheat crops are coming to the end on their growing seasons. With almost all the fund shorts out of the market, new longs entering the market will drive prices higher, so strength is limited. We expect further cuts in estimated Russian wheat losses with further gains of 50 cents to $1.00. But another ball is about to drop.

WINTER CROP

Russia will begin planting its winter crop in September. Should the drought continue through September and early October, talk of acreage reductions of 20 percent to 30 percent will surface.

Farmers are already talking about not planting wheat until rains come. The crop goes dormant in November until spring breaks in April. Some planting could resume then, but the early planting failure would already be priced in. This could push wheat to $10.00 or higher.

ROOM FOR GAINS

The immediate summer wheat production shortfall and long-term fall planting problems leave plenty of room for further gains. Consider buying the December $8.20 wheat call and selling the December $10.20 wheat call for 35 to 40 cents or $2,000 cast and risk. The option does not expire until the third Friday in November with the results of the summer damage and winter planting included. The option covers risk, as there is 30 cents of risk on every open in the futures.