Higher Corn Prices Supporting Wheat Prices

September 20, 2010 08:24 AM

Kim Anderson, Oklahoma State University

There is some evidence that the funds may be slowly liquidating long wheat contract positions. Analysts have reported that the funds owned 55,000 to 60,000 wheat contracts and 15,000 to 18,000 contacts may have been sold during the last week. Reviewing fund positions and wheat contract price movement indicates that funds tend to build long positions early in a price rally and liquidate the positions just before prices peak.
Without changes in the wheat supply, wheat prices probably have peaked for the 2010/11 wheat marketing year. This week, wheat production projections for Argentina and Australia were increased. Russia's wheat supply situation is uncertain. This next statement deals with corn but is a good example of what may be happening. There was a rumor that Russia told Ukraine that Ukraine would sell Russia corn or Russia would not sell Ukraine natural gas.
Reports indicate that winter wheat plantings in Russia may be as low as 50 percent compared to last year. Frost and poor harvest conditions in Canada may result in lower Canadian wheat production. This news is already factored into the market. The situation must get worse for prices to react.
The fact is that since 1987, U.S. wheat ending stocks have been above 900 million bushels (mb) three times: last year and in 1998 and 1999. The 5-year average is 582 mb. The 10-year average is 585 mb. U.S. wheat ending stocks are projected to be 902 mb. World wheat ending stocks are projected to be 6.5 billion bushels (bb) compared to 7.2 bb last year and a 5-year average of 5.8 bb. There is excess wheat in the U.S. and more than enough wheat in the world THERE IS NOT A SHORTAGE OF WHEAT, YET. A shortage is not expected. Caveat: Higher corn prices are supporting wheat prices.
Watch as Anderson and SUNUP TV does a fly over to see how wheat planting is progressing, as well as a market update.

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