Wheat’s export potential

This year has seen massive Russian crop problems, leading to a temporary export ban and expected sharp reduction in their exports over the coming year. Global business has shifted away from Russia and turned to countries like France, Canada and the United States. Since the concerns about the Russian crop really started to heat up in mid-July, U.S. export sales increased notably.

Over the last 5 weeks, U.S. wheat export sales have sharply surpassed the 10-year average sales level for the corresponding week. Specifically, U.S. wheat sales in the last 3 weeks have averaged 46.7 million bushels/week, a consecutive three-week average only surpassed once over the last 15 years, occurring in 2006/07 with a period averaging 62.3 million bushels.

As a result of the Russian export ban, the USDA sharply raised its estimate of 2010/11 U.S. wheat exports in the Aug. 12 WASDE report to 1.2 billion bushels from 1.0 billion previously and would reflect a 36 percent increase from last year’s exports. Additionally, exports at that level would easily reflect the second highest annual exports in the last 15 years and represents a notable departure from what has been generally very weak U.S. exports over the last 5 years.

Scientists crack wheat DNA

British scientists have decoded the genetic sequence of wheat, one of the world’s oldest and most important crops – a development they hope could help the global staple meet the challenges of climate change, disease and population growth. Wheat is grown across more of the world’s farmland than any other cereal, and researchers said they’re posting its genetic code to the Internet in the hope that scientists can use it as a tool to improve farmers’ harvests.

One academic in the field called the discovery “a landmark.”

A genome is the full complement of an organism’s DNA, complex molecules which direct the formation and function of all living organisms. Sequencing an organism’s genome, gives unparalleled insight into how it is formed, develops and dies.

Wheat is a relative latecomer to the world of genetic sequencing. This year marks the 10th anniversary of the date the human genome was laid bare. Other crops have had their genetic codes unscrambled within the past few years, rice in 2005, corn in 2009, and soybeans earlier this year.

Poor house sales = stuggling economy

The high-end market housing market, is under tremendous pressure. In fact, it is becoming non-existent. For the second consecutive month, zero homes priced above $750,000 were sold in July. Only 1,000 units priced above $500,000 moved last month. Over 80 percent of the homes that the builders managed to sell were priced for under $300,000. It’s just another sign of how this remains a full-fledged buyers’ market, at least for the ones that can either afford to put down a down payment or are creditworthy enough to secure a mortgage loan.

1 in 4 mortgages are upside down and, as a result, owners are prisoners in their own homes. We now have over 5 million homeowners either in foreclosure process or seriously delinquent.

CORN ANALYSIS

Corn closed the week $.00 1/4 lower. Last week’s crop progress report showed national good-to-excellent ratings were 70 percent, 1 percent higher compared to a week ago.

This year’s export profile is now at 2.066 billion bushels versus the USDA forecast of 1.975 bb.

Strategy and outlook: Hedgers have sold/hedged a portion of the 2010 crop when December futures traded above $4.50 and between $3.80 and $4.00. Producers should have also bought new crop put option protection and should use additional market strength to roll put options to a higher price level.

Making 2011 sales above $4.50 is a great place next year’s marketing plan.

SOYBEANS ANALYSIS

Soybeans closed the week $.12 3/4 higher from last week. Census July soybean crush was reported at 129.1 million bushels, marginally above market expectations of 128.5 million and compared to June crush of 129.2 mb and year ago of 128.8 mb.

This puts marketing year-to-date crush at 1.623 bb, up 5 percent from last year’s 1.542 billion.

The USDA reported crop ratings of 64 percent g/e, 2 percent lower compared to last week. This year’s export profile remains well ahead of last year’s record pace at 1.517 bb versus the USDA forecast of 1.470 bb.

Strategy and outlook: Producers have sold/hedged the 2010 crop when November futures traded above $10.30, $9.87 and $9.60. Producers should have purchased new crop put option protection and can use additional price strength to roll up those put options to better protection levels.

Making 2011 sales above $10.30 is a great place next year’s marketing plan.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.