CROPS

We may finally be approaching a market consensus that allows a breakout of the more-than-4-monthold trading range for wheat prices. Even though there is a reasonable technical chart-based rational for lower prices, the variety of fundamental factors now emerging in the market's mind is all positive.

This week, the USDA released the last crop condition update until spring. The U.S. winter wheat crop condition has continued to deteriorate due to lingering drought. The government reported Monday that only 33 percent of the national winter wheat crop was in good to excellent condition as of Sunday, down from 34 percent the prior week and 52 percent a year ago, another new record low since such ratings have been kept since 1986. Individual state condition ratings are ominous. 46 percent of Nebraska's winter wheat is poor-to-very-poor, only 60 percent of South Dakota winter wheat has emerged. The trade is generally aware that the most important rating season is in the spring, and that the stats heading into winter are not highly correlated with crop size next year, but the numbers are dire so far and the market must anticipate the risk of a smaller than normal crop.

Ukraine's grain traders are about to halt wheat exports to protect the country's food security, as their shipments their self-imposed 2012-13's limit of 5.5 million metric tonnes. Ukrainian wheat exports have reached 5.2mmt so far this season. The world has been operating on a hand-to-mouth approach to wheat buying this year, so there will be some business forced back toward the U.S. this winter as other sources go silent. The market has been talking about this shift for a couple of months without real evidence that it will actually happen, but last week's export sales numbers were much better than the trade expected, so now maybe we will see some upside.

Iraq issued a new tender Monday for offers of at least 50,000 metric tonnes of wheat from any of the group including the U.S., Canada, Australia, Russia, Romania, Kazakhstan or Germany by Dec. 7. Jordan has issued tenders to buy 100,000mt of wheat and similar amount of barley. The closing date for the wheat tender is Dec. 11, while that of barley is Dec. 12.

The Pacific Northwest has moisture, maybe too much moisture, but it looks like another decent crop coming here. One man's drought is another man's good price for wheat. Watch for a break-out above the $9.20-$9.30 level in Chicago March wheat.

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