7/30/10: The mob went wild in Chicago wheat futures today as prices surged 34 cents, white wheat tacked on another 15 from the day before. All the grain futures markets closed above significant resistance levels today which sets up for an interesting start to next week, which is also a new month. Egypt announced a tender this afternoon which figures to add fuel to the fire on Monday depending on whether or not Russia and France offer anything and if so at what sort of price. For some additional perspective on the big picture here's an excerpt from DTN's Darrin Newsome's article today concerning wheat supplies:
But, seriously, the bottom line is this: The general consensus seems to be a
loss of another 15 million metric tons of production worldwide. Leaving the
other supply and demand categories unchanged would put world ending stocks at
172 mmt, and the world ending stocks-to-use ratio at 26 percent. Putting that
number in perspective: Over the last 10 years, the world ending stocks-to-use
ratio has averaged 26 percent, while the mean cash price received by U.S.
farmers has averaged $4.16. As of Thursday night, the three major DTN National
Indexes for wheat (HRW, SRW and HRS) averaged about $5.47.
The argument is that tighter global supplies, coupled with the ongoing
weakness of the U.S. dollar index, is going to lead to increased demand for
U.S. wheat. I agree. Most likely USDA's July estimate of 1.0 billion bushels of
export demand is going to grow, as well it should. Let's say the entire 15 mmt
global loss (roughly 550 million bushels) moves to the U.S., increasing demand
by a like amount. That would put U.S. ending stocks at approximately 543 mb and
the ending stocks-to-use ratio at about 20 percent. Averaging the average cash
price received for 2007-08 of $6.48 when the domestic ending stocks-to-use
ratio was 13 percent and the 2005-06 average cash price of $3.42 (27 percent
domestic ending stocks to use) results in a theoretical equivalent cash price
expectation of $5.45.
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