With international wheat buyers continuing to gobble up available supplies in the U.S. and around the world, wheat prices moved to new record levels late last week. Ongoing concerns about the world's 2007/08 production continued to build ahead of the USDA's world production, supply/demand update on September 12. The U.S. wheat crop won't be updated until the Small Grains report on September 28.

Since mid-July, U.S. export sales have nearly doubled, to 608 million bu, their highest level for this early in the season since 1996-when wheat hits its previous record. Because 56% of the current forecast already is contracted and this crop year still has more than 9 months left to go, it suggests the USDA could increase 2007 U.S. exports by 50-75 million bu. to 1.15 billion.

Why is this occurring when this year's U.S. wheat output is up 16.5% over 2006? World production outside of the U.S. and China has been hit hard by weather over the last two years, cutting these area's supplies to their tightest stocks/use ratio since the 1970s at 14%. Given recent reports that wet weather has reduced Europe's harvest further (StatsCanada's August wheat crop forecast is 1.2 mmt less the U.S. estimate and Australia's Wheat Board suggests over the weekend their 2007 crop maybe 20 mmt vs. their previous 22-23 mmt estimate), this year's foreign wheat output could be reduced further. Because of these smaller supplies, the USDA could drop its 2007/08 world ending stocks projection by 4-5 mmt to 110 mmt, the lowest level since the mid-1970s this month.

Current prices likely will cut U.S. feed usage on the USDA's next S&D update, but expanding exports should reduce this year's U.S. stocks to their lowest level since 1995/96 at 357 million bu. prompting the tightest U.S. stocks/use level at 15.4%. In this highly emotional market, price projections are difficult, but all wheat producers should move up their 07/08 sales to 80% in $8.22-$8.30 and offer another 10% in the $8.50-$8.60 area, basis December Chicago. Given the dramatic 11 million hectare jump in world seedings after the high prices of 1996, 08/09 sales should also be increased by 15-20% to the 35%-40% level in the $6.20-$6.40 range, basis July 2008 futures.