The Wheat market has had multiple opportunities to take out key resistance levels, but has failed each time.  The fundamentals do not look supportive at this time.  The charts look like we may get another shot at driving some shorts out of the market.  The sharp sell off on Tuesday took out the recent lows, which opens up the possibility of a move lower.

Wheat traded modestly higher on Wednesday as Beans and Corn traded sharply higher.  Wednesday’s price action and the fact Sept and Dec Wheat contracts in Chicago could not take out resistance levels as beans traded 50 to 60 cents higher and corn traded 10 to 15 cents higher is disappointing for the bulls.  Trend following funds hold an extremely large net short position in Chicago.  As of July 21st, it is believed trend following funds are short about 50,000 contracts.  Funds have been decent sellers on down days, but only modest buyers on up days.  The Wheat market has not responded very well on days that the dollar has weakened.  Dollar strength has increased selling in all agriculture related commodities.  I do not expect trend following funds to build their net short position unless the dollar strengthens considerably.  That being said, the dollar may have to weaken considerably to generate much short covering.  It appears the market is going to have to lean on strength in the other markets also.  Considering the current US supply and the prospects for global production, the Wheat markets are going to find plenty of resistance.

On a more positive note, Egypt did buy a cargo of Soft Red Wheat from the US last night.  The bulk of the tender was sourced out of France.  Weekly export sales of 575,000 mt were above expectations.  Japan continues to buy US Wheat in its weekly purchases.  It is not likely India will take part in the export market anytime soon.  Key wheat growing areas of Argentina have received some moisture, but more will be needed.  Dry areas and crop stress also persist in key growing regions of Russia and the Ukraine.  Production in these regions will be considerably lower than last year, but current supplies have alleviated most concerns.  Most key growing areas of Australia have experienced favorable weather, but most wheat growing regions are not expected to receive much moisture over the next ten days.  These aren’t really factors to give much weight to right now, but these situations are worth paying attention too.

Like Western Canada, much of the US Spring Wheat growing region has also experienced cooler temperatures combined with late plantings.  Much of the crop is 2 weeks behind schedule.  Barring a spell of cool temps and an early frost, the crop looks to be great condition.  The spring crop rates 74% good/excellent vs. 59% as the 10 year average.  North Dakota, the largest Spring Wheat producer, is rated at 86% good/excellent vs. 64% as the ten year average.  Scouts on the Spring Wheat crop tour projected a yield of 46.2 bushels per acre, which is a record.  Last year they projected a yield of 37.7.  The majority of the tour took place in North Dakota, but some fields in Minnesota and South Dakota were also observed.  This crop has not been stressed and temps have been relatively cool.  This pattern has limited the protein content in the past and will likely do the same this year.   

Wheat growing areas of Canada have been fighting cool temperatures.  Additionally, some areas of Canada remain dry, while others are excessively wet with disease problems looming.  The Canadian Wheat Board pegged the Canadian wheat crop at 20.2 mmt.  Last year Canada posted production of 25.5 mmt.  This item was not entirely unexpected.  Keep an eye on the development of this crop.  Although short covering is possible, fundamentals will continue to weigh on these markets.    


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