As reported in a Bloomberg article, wheat output in Australia is expected to be 19.5 million metric tons for this year's harvest, compared to an original forecast of 23.7 million metric tons. Dry conditions, including the driest May on record, are being given as the reason for cuts in the estimates. Australia is the third largest exporter of wheat. Many farmers converted acreage to wheat as the price increased over the last year (before correcting). Wheat futures were up slightly in morning trading.

The U.S. Department of Agriculture is estimating that U.S. farmers will plant 8% fewer acres of corn this year. Farmers are shifting to higher-priced soybeans (us 18%) and wheat (up 6%). The journal is reporting that "A smaller corn crop is good news for farmers who could reap $6 a bushel this season, up from around $2 a couple years ago, if prospective corn acreage remains at the forecasted level and if a soggy spring keeps farmers in the Corn Belt out of the fields until later in the season."

In a previous post we mention how rain could caused soybeans to be planned instead of corn since they can be planted later. As such, the long corn, short wheat spread is still in play. As expected in the market, the seed and fertilizer companies are doing well, while those that need corn, such as the food producers, are taking a hit. Ironically, the ethanol companies are also finding margins squeezed as their feed-stock cost increase. Maybe Washington will final see the current folly of putting corn in our tanks, and not in our stomachs.

Agriculture Tickers: MON, POT, MOS, AGU

Dennis Gartman on CNBC made the case to decrease wheat positions, increase corn positions, and decrease soybean positions. The belief being that winter wheat (already in the ground) is known, and that any problems with corn, such as delays in getting it into the ground, will cause problems due to the current demand. Current rain is causing some of these delays. Since soybeans can be planted later, supply should be fine. Therefore, a potential spread position is to be long of corn, short of soybeans.