Cattle Today

Cattle Today



by: Jerry Welch

August 4, 2006 -- When Export Sales for wheat were announced to be 80 percent over the prior four week average and a new marketing year high I thought for certain that prices would finally begin to rise. After all, those bearish wheat have argued successfully that US wheat was too high priced compared to foreign competitors. We now e see that export sales are brisk even with prices at levels thought to be pricey. Did wheat prices rise significantly on Export Sales at a new marketing year high? They did not. When a private analytical firm, the most widely followed and respected in the futures industry pegged the drought reduced hard red spring wheat crop at 381 million bushels I thought for certain prices would finally begin to rise. After all, such an estimate if proven to be correct would place ending stocks below the levels of 1995/96 when prices came within five cents of $7 a bushel. Did wheat prices rise significantly on such a bullish estimate? They did not.

A month ago, the Australian government cut its wheat harvest estimate by 9 percent because of dry weather across the country. Since then, growing conditions deteriorated further and a week ago the government lowered their crop estimate from down 9 percent to down 28 percent. I thought for certain that such news would send wheat prices higher. Did prices rise significantly on the fact the worlds second largest wheat exporter had a crop far below last years? They did not.

A week ago, The International Grains Council cut its estimate of world wheat production to 598 million tons, down 9 million form the previous projection of 605 million. Hot and dry conditions in several major producing countries resulted in the lower outlook. Did wheat prices rise significantly on such an price positive estimate? They did not. The CRB index ended the month at its highest level in 40 years. On a weekly basis, the widely followed commodity index ended at its 2nd highest level in 40 years. On a daily basis, the index came within a meager 127 points from setting a new 40 year high. Did wheat prices rise significantly on such outstanding performance with the CRB? They did not. Understand, for all of 2006, KC wheat futures and the CRB index have moved in tandem. Each market set a major low during the weeks of March 31, April 28 and June 16. Following those lows, prices rallied. But this week, wheat prices did not follow the lead of the CRB. This week, the CRB soared while KC wheat prices on a weekly basis gained a pathetic 1 cent a bushel.

The week of November 25, 2005 was an important one in the relationship between the US dollar and KC wheat values. The US peaked out that particular week while KC wheat futures bottomed and eventually rallied $1.80 a bushel with a high set during the week of July 14. The inverse relationship between the two markets, with the benefit of hindsight is crystal clear.

This week, on the other hand, the US dollar closed sharply lower, hitting levels not visited in two months. An Employment Report hinting of economic weakness suggests the Fed will stop hiking interest rates. In the absence of rate hikes, the dollar should grind lower. Did wheat prices risesignificantly on dollar weakness? They did not.

Next week, the USDA will release the first official crop production and stocks estimate for corn, soybeans and wheat that includes field surveys rather than computer models. They will also revise supply/demand estimates for 2005/06 and the 2006/07 crop years. The report will be a market mover.

I expect a bullish report next week for wheat based on record low KC wheat stocks and global supplies that are hovering at dangerously lowlevels. Then again, the wheat market has been unable to rally on a host of bullish news for the past month. And any market that cannot rise on bullish news is a market that does not want to rise. Nonetheless, all my work shows it is too soon to stick a fork in the KC wheat market. It is not yet done!

Feel free to call me at 406-682-5010. I would enjoy hearing from you.


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