The wheat futures market appears to have posted its seasonal high and has moved to a lower level based on expectations of a bigger world crop next year.
The clincher was the U.S. Department of Agriculture report last week that should have supported wheat prices, but instead sparked a sell-off.
Traders have fully factored in the drought ravaged Australian crop and are now looking at demand and next year’s crop.
American traders say U.S. wheat has become too expensive and some buyers are turning to Russia and Kazakhstan. The latter is expected to export about eight million tonnes this year compared to 3.8 million last year.
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No special crop fireworks expected
farmers should not expect fireworks in the special crops market due to ample supplies.
Early this week, Turkey rejected all offers on a tender for soft wheat and durum because prices were too high.
As for 2008 production, analysts are talking about a four to five million acre increase in U.S. winter wheat seeding.
Rain fell in Kansas and Oklahoma early this week, improving moisture in an area that had got a little dry since a miserable damp harvest in July.
The USDA said 73 percent of expected winter wheat acres have been planted as of Oct. 14, compared to the five year average of 76 percent.
Europe has dropped its 10 percent land set-aside restriction, potentially adding four to seven million acres to the 2008 crop area.
If that was all devoted to cereals, it could add as much as 17 million tonnes to the crop.
Meanwhile, Argentina’s wheat crop is progressing well with excellent moisture.
The hot trade in the market will likely turn to oilseeds in the coming months, focusing on the condition of the South American soy crop and American farmers’ thoughts about soy versus corn going into spring.
Canadian canola should be well supported by the soybean market and high crude oil prices, which add momentum to the biodiesel market.
About the only fly in the ointment is the strong Canadian dollar.
CIBC World Markets chief economist Jeff Rubin early this week forecast that the loonie will stay strong and will rise to $1.05 US by the end of 2008, reflecting the relative strength of the Canadian economy compared to the U.S. economy, with its problems in housing and the trade deficit.
In the past, a weak U.S. economy would have pulled down Canada’s economy, but the booming resource sector that is supplying the growth in China and other developing countries will keep things buoyant north of the border. Interest rates will likely fall in the U.S., he said, but be steady in Canada.
