July wheat traded 1/2 cent lower in overnight action. Outside markets were mixed and the dollar was higher.

Prices fell back sharply on Friday, despite the sharp run up in soybeans. Traders said that the higher than expected USDA estimate of the US new crop combined with a record forecast for new crop world wheat generated liquidation selling by locals, commission houses and funds on Friday. Rains continued over the weekend in hard red wheat areas, which many traders expect to bring further improvement to that crop. Pakistan's Prime Minister said today that they will raise their wheat import target from 1.5 million tonnes to 2.5 million tonnes in order to build strategic reserves. Deliveries against the May wheat contract today were only 33 contracts. The Commitments of Traders Report for the week ending May 6th showed that trend-following funds were large net sellers of 7,503 contracts, while index funds were net buyers of 2,594. Small traders were net buyers of 1,838 contracts. The USDA attache in India indicates that the new crop potential is high enough that the country is likely to avoid imports for the coming season. At the Argentina exchange, traders see wheat plantings coming in down 8% from last year. US wheat production for 2008/09 is now pegged at 2.392 billion bushels, well above trade estimates and above 2.067 billion from last year. Ending stocks are now expected near 483 million bushels as compared with expectations near 425 million and 239 million this season. World wheat ending stocks for the current year were pegged at 110.02 million tonnes, but record production (656.01 million tonnes) is expected to push ending stocks at 123.99 million tonnes. RICE: Mexico said that it will allow 250,000 tonnes of rice into the country with no tariffs in order the bring relief from food inflation. Malaysia's widely reported purchase of 500,000 tonnes of rice from Thailand last week was not actually completed. Traders say that Malaysia wanted to buy at $850/tonnes while Thailand expected $1,000/tonne. Malaysia will raise the minimum price for domestic rice growers according to the Prime Minister. Deliveries against the May contract in rice were just 10 contracts.

Scattered light to moderate rains moved through the central Plains overnight with more general coverage seen in the northern Plains at that time. Rains are likely tomorrow in the east-central and southern hard red belt, with central and southern areas of the soft red belt getting rain on Wednesday. In general, the coverage coming from this system looks less widespread than we expected last week. Tunisia bought 109,000 tonnes of optional origin wheat last week. Japan should reenter the market with a weekly tender this week after standing aside for two weeks due to national holidays.