This coming Wednesday evening, a letter of intent may be written by Egypt for the purchase of 1 million tonnes of French wheat imports. If this develops, France could meet 14% of Egypt's annual wheat import needs. Canada's Federal Ag Department estimates wheat production in 2008, will be up 29% versus 2007 levels and higher than last months estimate of 25%. Monday's higher futures are tied directly to the strengthening corn futures, and technical correction from oversold status. Bearish to wheat futures is the prospects of a 41 million metric tonne (1.5 billion bushels) increase in world production in 2008 compared to 2007. Allendale suggests the US is likely to lose some world market share, but look for continued strong domestic and world demand. Allendale's Season Average Farm Price for 2008/09 wheat is estimated at $5.80 per bushel versus 2007/08's $6.65 per bushel.
The present July CBOT wheat versus CBOT July corn spread is 2.27 premium the wheat and in a major downtrend from a recent level of 3.00. Immediate resistance is 2.50 and then 2.68. Key support is 2.15 and then 2.00. One year ago the spread was quoted at 1.08 premium the wheat. You may consider stopping into a long wheat/corn spread just above the 2.50 level with a 2.68 objective. Use a risk-reverse of 2.42 and an objective of 2.15.
Even though the present US winter wheat crop conditions are less than average, globally the crop is doing well and headed towards larger production than year ago levels. In this week's NASS report, winter wheat ratings gained 1% in the good and excellent ratings to 46%, this compares to last year's rating of 56% good to excellent. World wheat stocks are expected to rise to 128 million tons in 2008-09, up 14 million tons from 2007-08. At this juncture Allendale is willing to sell corrective rallies via call options.
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