September Chicago wheat traded sharply higher overnight and is up 12 cents at 7:30 CST. Kansas City and Minneapolis wheat are trading stronger as well. Chicago wheat erased early losses last night and followed corn to new highs. September Chicago wheat is trading at it's highest level since August 2008. The November Paris Matif contract is 6 Euros higher this morning and posted a new contract high at 267.75 Euros. Outside markets are helping grains this morning with stocks higher, crude oil pushing above $90, and the US Dollar is slightly lower.
September Chicago wheat traded at levels not seen since August 2008 overnight. The front month September contract has surged nearly 47% since June 15th. The global outlook for wheat feeding looks more optimistic each day, and the market is beginning to add additional risk premium as wheat stocks shrink around the globe. The fund community has likely wiped out all of their short positions by now and open interest continues to climb with the higher trade. Open interest increased by 6,955 contracts yesterday with total open interest sitting at 459,565 vs. 422,238 this time last year.
Nothing has changed in the fundamental story for global wheat. The Black Sea remains a huge concern to the market after a growing season that saw freezing temperatures last winter, blistering temperatures this summer, and lower than normal precipitation totals. Russian wheat production could fall near 45 million tonnes and traders are beginning to wonder if new export restrictions will be announced if the situation gets any worse. Western and Central Europe have their own set of issues with heavy rainfall during the grain filling stage and harvest. Parts of France, the UK, and Ireland are reporting disastrous quality problems and a large percentage of this soft wheat crop could move towards feed demand channels. French milling wheat sales for June and July have been rumored to be switched to German origin after the quality of the wheat became questionable.
Farmers benefited from a brief pause in the rain yesterday and resumed harvest. Export tenders were lined up yesterday morning after a brief break in wheat prices. Jordan reissued their tender for 100,000 tonnes, Tunisia issued a tender for 125,000 tonnes of soft milling wheat, and Cyprus private buyers are looking for 3,000 tonnes of milling wheat. Overnight, The Taiwan Flour Millers Association purchased 43,500 tonnes of US milling wheat (Hard Red Winter and Dark Northern Spring Wheat). The association is a traditional buyer of US wheat so the business is not extraordinary.
Argentina is expected to plant 22% fewer wheat acres than last year as farmers shift to more profitable cash crops. Argentina is projected to produce 12 million tonnes of wheat for 2012/13 in the most recent USDA update.
While the 47% rise in wheat prices is extreme, the surge is arguably justified. One major banking institution raised their forecast for 2012/13 wheat prices to 8.20 per bushel vs. previous forecasts of 6.30 per bushel. The relentless surge in prices, triggered by an ongoing drought in the US Midwest, has turned into a legitimate bull market sitting on a growing foundation of fundamental concerns.
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