The price action in the wheat market during the week allowed both the bulls and the bears some bragging rights. The wheat price dropped lower early in the week. It set a new recent low for the move on Wednesday before bouncing back at the end of the week. The September Kansas City wheat contract settled down 18 cents for the week. The chart shows a market that is trying to find a bottom with the trend following indicator approaching an over sold condition.

The wheat market is starting to switch focus from a supply driven market to a demand driven market. The news out of Russia about their crop loss is now becoming history. The demand news is on the rise as countries transfer their source for wheat from Russia to other parts of the world.

This week’s export sales report for the United States totaled 1.412 million metric tons. This number was above the high end of the range of estimates. Egypt (the largest world importer of wheat) was the largest single buyer of wheat securing 594,000 metric tons. Canada and Mexico purchased over 100,000 metric tons. A positive for the Kansas City wheat market is that 48% of the total sales came in hard red winter wheat.

Russia is still not out of the woods. This country received light amounts of moisture in the northern section, additional moisture is in the short-term forecast but the amount, and coverage is small. This country needs a general rain for winter wheat planting to begin. This country is trying to determine if, when and how much feed grains will need to imported to cover their domestic usage.

On the negative side, Stats Canada released an update on their wheat production pegging their all wheat crop size at 22.7 million metric tons. This is 2.1 million metric tons above the last USDA number.

For most of the week, the wheat market continued its habit of posting solid gains on a daily basis. The rally started on news out of the Black Sea Region on the loss of wheat production due to inclement weather conditions. The news stories that hit the press kept increasing the amount of loss with each new story. Emotion added to the buying frenzy as funds jumped aboard this fast moving train. This active buying came to a halt on Friday as technical traders took home some profit.

A bullish news story from Russia hit the wires on Thursday when their government announced a ban on exporting wheat and wheat products. This country had denied this numerous times in the last two weeks. This announcement sent the wheat price limit up on Thursday. The buying continued in Thursday’s night session. A new recent high was established. Then came Friday, when a Russian Minister indicated that they would honor existing grain obligations on the books. This was the opposite news released the previous day. This will allow Egypt and other countries to receive their wheat purchases. This news was bearish and Friday became a sell day.

Is the party over is now the question. Many technical traders were anticipating a blow off top. Looking at the charts, we may have seen this chart action as Friday’s close was below the previous day’s low. Technical traders call Friday’s price action a key reversal and a bearish technical. The September Kansas City wheat contract did close limit down.

The last five-week’s price move in the wheat market has been impressive especially for this time of the year. It took a problem in the third largest wheat exporting country to rally the wheat. The news out of the Black Sea region kept expanding the idea of a major crop loss. No doubt, the loss is major for these countries but we still have wheat inventory to sell in the world.

The charts show a market that has traveled a long distance in a short time. A correction is due and could be larger than expected just like, the rally was.

The buying frenzy continued this week in the wheat market. The September Kansas City wheat contract gained 37 ¼ cents for the week. This contract has rallied 85 cents from the last low to this week’s high. This rally is technical in nature as the charts turned higher and chased away trend following funds holding a large net short position. Trade talk indicates these funds have liquidated their shorts and could be now, net long with a small number of contracts.

The wheat price retraced on Friday as traders view the monthly supply and demand report by the USDA as bearish.

Friday’s report increased the ending stock number for wheat in the United States by 60 million bushels over the average trade estimate. This number exceeded the magical mark of one billion bushels by 93 million bushels. The USDA did raise the export estimate by 100 million bushels because of the condition of the wheat crop in Canada. They expect some wheat export business to move south. This ending stock number is almost half of the total wheat production. Kansas’s wheat production estimate was 369 million bushels with the highest yield estimate since 2003.

In their world report, the USDA dropped wheat production in the European Union, Canada, India and the Former Soviet Union countries but raised China’s estimate. These countries accounted for 11 million metric tons increase in world production. In the bottom line, world wheat ending stocks fell 6.2 million metric tons. This was less than the trade expected and the cause for the last day of the week rally.

The wheat price has held “amazingly” well all week despite bearish fundamentals until Friday. Friday’s price action opened below short-term support on the charts and the selling continued into the close. In addition to technical selling, pre-weekend hedge selling by elevators added fuel to a negative fire.

The July Kansas City wheat chart shows the price was sitting on the edge of a mountain. The trading action for the first four days of the week showed a sideways pattern and major support at $4.92. When the price traded below this technical support point, sell stops triggered. Sellers were aggressive into the close.

Despite the United States lack of securing business from recent wheat tender from large importing countries, the weekly export sales report for the last two week have registered some impressive numbers This week’ wheat sales totaled 721,000 metric tons. Unknown destination (246,000) and Brazil (80,000) were the major buyers in a list of 20 countries. It is a positive that Brazil was included in the mix. With Canada’s production in question, Brazil is looking elsewhere to secure some bushels. This improvement in demand needs to continue. Egypt did tender for 120,000 metric tons of wheat after the close on Friday. The United States or Canada could secure half of this tender.

The Kansas wheat harvest is at a fast pace. Combines are moving in most sections of Kansas except for the northwest. Yields are meeting and in some cases exceeding producer’s expectations. The test weights are 60 and above. The protein level is a mixed bag as the range is wide. In some areas, the protein level is higher than expected. The basis has shown some improvement in these areas but a large number of elevators want to see an improvement in the composite number before narrowing the basis. Elevators are having a hard time securing bids for wheat as millers want to see where the protein level is. If the protein level shows improvement, the basis will narrow.

NOTE: Because of a weekend commitment, the wheat comments are as of Thursday.

It was a positive week for the wheat market as the price rallied with solid gains. Support for the wheat came from reported demand, weather, harvest delays and large wheat tender. This combination allowed the trend on the charts to reverse in a counter-seasonal rally.

The weekly export sales number was large at 960,000 metric tons. It is hard to recall a number this large. Mexico, Peru, Japan, Nigeria and South Korea purchased over 85,000 metric tons each. These countries found value on the twelve-month break in price.

Traders are still digesting the numbers released by the Canadian Wheat Board last Friday. They predicted wheat plantings down 18% from last year. Their estimate for wheat production is 18.9 million metric tons. This is a drop of 5.4 million metric tons from last year. The wet conditions continued this week. Saskatchewan the largest grain-producing province is 73% planted. It is getting late in the season for addition seed to be placed in the ground.

It has been wet in the southern region of the Plains States. Harvest has been at a snail’s pace. There were producer comments on Thursday about combines returning to the fields in the southern section of Kansas. By the weekend, the harvest activity will increase, as the skies stay clear. Wheat is ripe in a large area in the southern half of Kansas.

This week, Saudi Arabia issued a wheat tender for 990,000 metric tons. This is the largest single tender in some time. They are requesting bids for 12.5 to 14% protein wheat. They may have to settle for less. The bid deadline is Friday. It would be a surprise and bullish if the United States secured any of this wheat business.

The price in the wheat market stayed under pressure during the week. Hard Red Winter harvest is active. Demand news is weak. Funds are holding a large net short position and defending their beliefs. In addition, the seasonal tendency is for price to work lower through wheat harvest.

Wheat did experience a rally at noon on Friday as the Canadian Wheat Board released their update for wheat production. Because of heavy spring rainfall in the western section, they predicted wheat plantings acres at 19.5 million acres. This is the smallest number since 1971 and an 18% reduction from last year. They estimated their wheat production at 18.9 million metric tons compared to last year’s number of 24.3 million metric tons. This is a positive world development for the wheat price.

On the bearish side is the slow demand. The weekly sales report showed 174,000 metric tons of wheat. This is the lowest in recent weeks. Wheat importing countries know they can secure wheat because of the large world inventory. They also understand that the price works lower this time of the year. They can operate on a hand to mouth basis.

Wheat producers are seeing pressure from two sides. The futures have sold off and the basis is widening. Following six location in Kansas, the wheat basis ranges from $1.18 to $1.35 under the July Kansas City wheat price. Elevators in the southern section of the Plains States, namely Texas, are full from carry over from last year and new production.

Two positives for the wheat market are on the demand side. Our price for wheat exports is getting closer to the competition. Last week’s Egyptian wheat bids from the United States were $10.00 per metric ton to high. This is an improvement but still no deal. In addition, feed yards can put wheat in their feed ration at the current cash price. Hearing one feed yard in Texas has secured one million bushels of wheat for feed usage. There are glimmers of hope for the wheat market.

The wheat charts were trying to turn up during the later part of the week until Friday. On Friday, wheat futures traded both sides early in the session before outside market influences changed at mid-session. Nervous bullish traders were quick to step aside and the wheat market took a tumble along with the other grains. Friday’s sell off in the wheat market took away all the gains posted during the week plus some. In fact, the July Kansas City wheat contract lost 13 ½ cents for the week.

The bearish news is a steady stream in the wheat market. The weekly export sales number was in line with the estimates but the range of estimates was low. On Friday, Iraq purchased 180,000 metric tons of wheat with Russia their source. They are a price conscious buyer. The wheat market is thankful that Japan and Nigeria have been regular buyers of our wheat. We need more countries like them. On the supply side, current wheat conditions are holding steady at higher than normal levels. Rain fell through the southern Plains States during the week and the northern section has a good chance for moisture in the five-day forecast. For most producers, moisture is adequate to finish the wheat crop.

Adding insult to injury for producers, the cash basis is widening. The wide basis attributed to a large carry over inventory, slow demand, increase in freight rates and a high possibility for a large wheat crop that will have test weights with a low number. Commercials are concerned with the low-test weights, therefore, there are cautious with their bids.

Looking for a bright spot in the wheat market, one has to look ahead. The 2011 July Kansas City wheat contract price is trading 71 cents above the July 2010. This tells us that the wheat price will get better but it will take some time. It also tells producers to hold wheat for a better price but this can be expensive because of storage cost. Producers who have storage on the farm and commercials that have terminal storage can take advantage. Local elevators do not have this luxury. They have to move the wheat inventory in order to make room for the fall harvest. It is these conditions, which will keep the basis at a wide level.

Wheat futures reversed direction during the week. It was a week of bearish fundamental news. In addition, on Thursday, the price dropped below the 50-day moving average, and attracted technical selling. The July Kansas City wheat contract lost 31 cents for the week.

This news sent the wheat market lower on Tuesday. Wheat futures had a rebound on Wednesday because of a rally in the corn market but the gains failed to hold. The rest of the week was in the hands of the bearish traders, namely the trend following funds and bearish technical traders.

The weekly sales number of 485,000 metric tons was above the high end of the range of a low range of estimates. Half of these sales were new crop wheat. Rumors circulated on Friday, that Mexico would approve wheat imports from the European Union. The added another dagger to the wheat market.

The charts show damage to what was an up trending wheat market. Despite weak fundamentals, the technical picture had attracted trend following bullish traders. This trend has reversed and wheat futures lost their major supportive cast. The seasonal tendency shows a decrease in price into harvest. The question is “has the wheat market started a decline in price that usually continues into the first part of August”.

It was a positive week for the wheat market as the July Kansas City wheat contract made a new high for the move.  This springtime rally, which is a common seasonal tendency, has been positive but the amount of the up swing in price is less than a normal year.

The Annual Kansas Wheat Crop Tour moved through Kansas this week with scouts finding a decent crop.  The estimate equaled to last year at 333.5 million bushels.  Their yield estimate was 40.7 bushels per acre.  Some rust was noted but in the early stages.  The moisture profile was above normal on the first day but some concerns noted on the next two days.  Scouts were surprised at the actual yields compared to their windshield yields.  In many cases, the actual yield was 3 to 5 bushels below their observation.  The trade had expected a higher number as they were comparing yearly crop conditions.  Crop conditions for Kansas reported on Monday was 70%.  Last years number for the same time was 53%.  Many on the tour expect abandonment of acres to be low.

It sounds like a broken record but producers need to be pricing some production during this springtime rally.  With the chance of low protein, high production and an increase in freight rates, the cash price is likely to work lower into harvest.  Cash forward contracts and selling futures are two ways to protect price.  Those who like using the put option should look at buying at the money puts in the Kansas City market.  A July Kansas City wheat $5.20 put option will cost 24 cents.  To extend coverage, look to buy a September at the money put option for 35 cents. 

The wheat market saw a heavy selling day to start the week.  The rest of the week was in the hands of the bulls.  Technical buying was the feature.  On Thursday when the price exceeded the previous day high, buy stops triggered and when the price exceeded the last reaction high, additional buy stops triggered.  This illustrates the reason to pay close attention to the technical picture.  Enough traders use the charts to position themselves in the market.  The charts look positive despite the bearish tone of the fundamentals.

This week’s export sales report listed 464,000 metric tons of wheat sold to seventeen countries.  The problem was almost 3/4^th of the total was new crop bushels.  Our old crop price is not competitive.  The wheat market saw some sizable number of wheat tenders posted this week but the United States struggles to make large sales.  We do attract some business on the smaller amounts. 

The weekly crop condition for wheat improved 4% to 69%.  This is the best condition for wheat since 1998 for this time of the year.  Kansas was up 2% to 71%.  Oklahoma and Texas improved 3% each.  The odds favor a higher than tend line yield when the early conditions are above 60%.  In addition, abandonment of acres is less than normal.  The southern section of the Plains States received a decent amount of moisture during the week.  The conditions, next Monday, could see a slight improvement.

Producers should usE springtime rallies as selling opportunities - Especially, technical rallies.  The recommendation is for producers to finish selling remaining bushels of old crop.  In addition, forward price some new crop wheat using cash forward contracts.  Yes, the basis is wide but this could continue to expand.  Elevators will have a hard time selling low protein wheat.  If the wheat is not stressed, the protein level will drop.  In addition, freight rates will increase prior to harvest. 

The wheat price posted its high for the week on Monday and then selling took control and stayed into the close on Friday. New contract lows established as the U. S. dollar rallied. Even Friday when the dollar sold off, the wheat market failed to rally. The wheat has established a habit of lower prices and a bad habit is hard to break.

Traders see the fundamentals as bearish as the supply shows a high number and the demand is steady at best. Wheat importers know the world supply of wheat is large and they have no need to build inventory. Figures this week showed our wheat price, 30 cents per bushel above the competition. Despite our higher wheat price, the weekly sales report listed 519,000 metric tons of wheat sold for two crop years. This was slightly above the high end of the range of estimates. Traditional buyers such as Nigeria, Indonesia, Japan and South Korea topped the list of seventeen countries. The wheat market needs to see the names of Egypt and Iraq to excite the bullish traders.

The USDA will release updated grain reports at the end of the month. Wheat traders will watch for the Spring Wheat acreage and the quarterly grain stock numbers. The average acreage estimate for Spring Wheat is 13.43 million acres. This would be a slight increase over last year. The average estimate of quarterly wheat stocks is 1.366 billion bushels. This would be 326 million bushels above last year’s number. As you can see, the pile of wheat is getting taller.

PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH TRADING FUTURES AND OPTIONS CONTRACTS EVEN, WHEN USED FOR HEDGING PURPOSES. PLEASE CAREFULLY CONSIDER YOUR FINANCIAL CONDITION BEFORE INVESTING IN FUTURES AND OPTIONS CONTRACTS. FUTURE’S TRADING IS NOT SUITABLE FOR ALL INVESTORS. OPTIONS CAN AND DO EXPIRE WORTHLESS. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIMUM AND OF ALL TRANSACTION COSTS.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST SEVERAL YEARS. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY AFFECT THE RESULTS.

Reacting to the release of the monthly update by the USDA, the new crop wheat contract in the Kansas City market made a new contract low on Thursday before a small recovery on Friday. The wheat stocks in the United States and the World continue to inflate.

The USDA in their March Supply and Demand Report released on Wednesday raised ending stocks in the United States by 20 million bushels. They left their export number unchanged but lowered domestic usage by 20 million bushels. Ending stocks in the United States are at one billion bushels. This is the largest ending stock number since the June 1988 report. Many analysts predict the export number in future reports will drop and the ending stock number will increase. World ending stocks for wheat increased 900,000 metric tons.

The shifting of wheat demand out of the United States reflected in the data from the Former Soviet Union countries. Their wheat production in 1994-95 was 60 million metric tons. In 2008-09, this country produced 116 million metric tons. They have produced a surplus and are now the major competitor for world wheat exports. Their location in the world is a sizable advantage over the United States since most of the wheat importers are in their area. In the mid-70’s, the United States had 50% of the world wheat export business. This year, we will ship 18% of the world total. This would be a 38 year low for the United States. This shows the drag on the wheat price is on demand side of the equation for the United States.

The positive side of the wheat market lies in the drop in winter wheat acres and the oversold condition found on the charts. There is little talk about the large drop in winter wheat plantings in the United States, as the moisture profile is good. The weather needs to stay ideal for a second year of high wheat production. Freeze, heat and a lack of moisture at filling time could chip away at yields. If one was just a chart trader, the trend indicator is at the bottom of the graph and throws up a caution flag. The wheat price is due for a bounce. The recommendation for producers is to take advantage of a spring rally and move some grain. Sell remaining old crop inventory and forward price some bushels of new crop.

PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH TRADING FUTURES AND OPTIONS CONTRACTS EVEN, WHEN USED FOR HEDGING PURPOSES. PLEASE CAREFULLY CONSIDER YOUR FINANCIAL CONDITION BEFORE INVESTING IN FUTURES AND OPTIONS CONTRACTS. FUTURE’S TRADING IS NOT SUITABLE FOR ALL INVESTORS. OPTIONS CAN AND DO EXPIRE WORTHLESS. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIMUM AND OF ALL TRANSACTION COSTS.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST SEVERAL YEARS. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY AFFECT THE RESULTS.