CBOT markets opened higher this morning with wheat gaining ground after the US winter wheat crop condition declined another one percentage point to 33% good/excellent and the poor/very poor rating increased two percentage points to 26%. Albeit these moves were pretty much expected but the market took the news to heart and rallied strongly.

The ongoing dry conditions in the US Plains coupled with above average temperatures are preventing the crop entering into dormancy and consequently prolonging and exacerbating the crop’s stressed status. We are picking up on reports of wheat crops turning brown and displaying signs of dying off. Whilst this is an early indication of the crop (and unlikely to be representative of the whole crop), some commentators are already raising their estimate of abandoned acres and trimming yield forecasts.

The prolonged “bearish” view on US wheat, which has predominantly emanated from the lack of sizeable exports so far this season, could well be about to be tested. The remainder of the week will be very interesting to  monitor.

Today the HGCA’s UK supply and demand report confirmed what we have been discussing for a while; that is that the UK will be a much larger wheat importer than in previous seasons, potentially topping 2 million mt as a result of the well documented poor harvest which impacted both yield and quality. In addition there are further wheat tenders in coming days by Jordan, Iraq and Algeria, which will add pressure (particularly to EU prices) at a time when we hear that, at long last, EU feed producers (notably French) are coming to the market to take cover. Both Paris and London markets rallied strongly with Paris volumes reaching a huge (for Paris) 37,458 lots.

Elsewhere in the world the pattern on wheat markets remains pretty much unchanged; in other words there is little in the way of good news to offset what the trade has reacted to today.

We believe that he soy complex is one to watch in coming days and weeks; beanoil export volumes continue to run at levels ahead of expectation with the implication that stocks will decline by as much as 50% to one of their lowest levels since the late 1990′s. Fund short positions, which are large, if they chooses to cover and go long, could well prove the catalyst for the “explosive” price moves we have been highlighting for some while. Caution is the watchword right now!