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The devastating drought which still has no sign of abating in the Black Sea region has been the primary bullish factor supporting the surge in wheat prices in the past month. December wheat put in a low of $4.85 per bushel on June 30th and posted a high of $8.68 on Friday, August 6th, a gain of 79% in just 27 trading sessions. End users were forced to make a sudden adjustment from an oversold and down-trending market with growing surpluses to the sudden loss of tens of millions of tonnes of supply from Russia, Kazakhstan, Ukraine, Canada, Germany, France, Hungary, Bulgaria, Morocco and elsewhere. We believe the rally into the August 6th peak may be just an “adjustment” spike and that the market will soon return to more of a trading range back down to the 625-725 zone basis December wheat.
The wheat market is making a shift from weather-related production losses to a scramble by major importers to book sales before prices move even higher. Many importers such as Egypt will need to diversify their supply sources. Egypt is the world’s largest wheat importer, and they have become almost completely dependent on Russia over the past year due to lower shipping costs from that region. Now they must get more of their wheat from France and Germany and even from the US and Australia. Record high temperatures in Russian grain areas for the past few weeks (105-110 degrees) with a lack of rain helped drive the market higher. End users, fund traders and producers were caught out of position and the adjustment has been fast and furious.
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