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Market Plus: Feb 09, 2007: Doug Hjort, Independent Analyst

posted on February 9, 2007

Market Plus: Feb 09, 2007: Doug Hjort, Independent Analyst Pearson: Welcome to the Friday, February 9th, 2007 Market Plus segment here at our Market to Market Website. I'm Mark Pearson. Glad you've joined us. Doug Hjort is with us this week and whenever Doug is here, Doug is a Montana boy, he was raised running his toes through that wheat coming up in the late fall out there and so we like to pinpoint him on what he sees ahead in the wheat market. And, Doug, you know, wheat has been so critical. I mean, wheat was the analyst, that short wheat crop that you talked about for quite a while last year that we were looking at in the hard red wheat belt, particularly in the panhandle of Texas and Oklahoma and southeast Kansas which was such a problem last year really proved to be the catalyst to get the corn market and soybean market to take off last fall. On the show you said it's going to be the catalyst again. You're watching wheat right now to see what it might do to corn and soybeans. What is happening in this wheat market?

Hjort: It's kind of a long story but going way back quickly to last fall or last summer rather in May of 2006 USDA put out there new supply-demand balances for the 2006-2007 year. They said then that we would have an extremely tight supply-demand balance worldwide on wheat. Well it was and prices just shot up dramatically. They peaked out and then they double topped and just struggled. And so the trade kind of forgot about how tight wheat supplies are. Got to remember that wheat is grown every place in the world and you can find an extra bushel it seems like of wheat almost any time to just get by until the next week or the next harvest or whatever. That's been going on. All the bins all over the world had been picked at and U.S. export sales did not pick up the way they were anticipated to do. Now maybe it's taken this long for everybody else to buy all of those stocks out here all over the world and now they have to come back to the United States. you have to remember a lot of these foreign countries don't care for the U.S. and they take it out on us in some trade relationships. So, I'm not sure that wheat has the power to really help the corn and the beans up to the next level or not. I think they have to provide a lot of their own strength. But wheat is in a position now to where it's finding some technical support maybe. The trend is still down on most of the charts but we're starting to turn, we're consolidating a little bit down here. I would expect to see U.S. exports of wheat, export sales being quite good for at least two, maybe three months. Then you're going to run into some of the new crop out of the southern hemisphere, again, or new crop potential I should say, not new crop bushels. And so I think there is a good chance that this wheat market can firm a little bit. A lot of work to do though, a lot of work because of the damage that's been done because of this long-term gradual downtrend. The speculative crowd has been using wheat as the sell on spreads. It's been even spreading or just outright selling on the wheat futures. You get a little rally boom, they hit it and knock it back down. So, that has to be broken, that trend has to be broken before wheat prices can really turn and go back up. I think you're at that point though right now and in that regard I would not finish out selling old crop wheat if you have any left right now. However, by maybe middle or end of March you better be looking pretty seriously at having that old crop cleaned out. As far as new crop I'd just be a little bit slow on trying to do anything there. The outlook for wheat in the world this coming year looks to be pretty good. Acreages are increased here in the United States and around the world. But just this week, for example, we saw some of those high estimates on production being scaled back a little bit. China, a think tank in China said maybe two million acres less of winter wheat due to dryness last fall. India cut two million tons of wheat off their projection. They've got a good crop but took a little off the top there. So, I'm looking for a little bit of support. It's going to be interesting to see what wheat does in the next couple of months.

Pearson: Alright, we'll see if it acts as the catalyst again. We'll see what happens as the markets continue. And, again, Doug Hjort, we appreciate your insight. From all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news wheat