September Chicago wheat traded 9 1/2 cents higher overnight on follow through from yesterday's positive move heading into the close. Kansas City and Minneapolis wheat posted marginal gains. The November Paris Matif contract is trading 0.41% higher near 247.75 Euros. Outside markets are providing a negative tilt to commodity markets this morning with U.S. stocks slightly lower, the U.S. Dollar higher, and crude oil trading weaker. There were 25 wheat deliveries in Chicago yesterday, bringing the month-to-date total to 855 contracts. While the U.S. wheat balance sheet does not offer much in the way of support for wheat, the world balance sheet is beginning to tighten after the USDA provided solid evidence of production cuts around the world. While credit should be given to the USDA for cutting production drastically in the Black Sea region, the fact remains that more may need to be done. Without the help of good weather, a third of the spring wheat crop in Russia and Ukraine could see yield damage due to dry weather. The ongoing heat and dryness in the Volga region could mean further yield reductions and some in the trade feel another 4 million tonnes can come out of Russia, bringing their total production to 45 million tonnes. Reports have already begun to surface that the early yields for the southernmost growing region are coming in at 2.5 tonnes per hectare vs. 4.1 tonnes per hectare in 2011/12. The USDA made no changes to Argentina and Australia production or exports as it is too early to make assumptions about their production potential. Argentina planted considerably less wheat this year as farmers shifted to more profitable cash crops. Australia has seen dry weather to start their crop year and the fact this may be setting up to be an El Nino season, raises concern over long term drought implications. Between the two countries, a loss of 1 million tonnes would not surprise the trade. Overall, the weather patterns for the Black Sea and southern hemisphere suggest that revising production down another 4-6 million metric tonnes between the Black Sea and Australia would not catch the market off guard. The prospects of a tightening corn balance sheet also raise the potential for an advance in the global feed wheat trade. The U.S. wheat balance sheet is tightening but the 27% stocks/usage ratio still provides a sense of comfort for the time being. The long term prospects of higher trade and better demand for the U.S. remain a positive force, and suggest higher price levels moving forward.
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