'Panic' wheat buying across the US

By Arlan Suderman, Farm Progress grain markets analyst
Tuesday, 26 February 2008

In the wheat price surge on Monday this week, the leading wheat contract in Minneapolis, US, rose by more than the entire worth of the contract just months ago.

Prices rallied by $5.75 a bushel, or by nearly 30pc, at one point from Friday’s close.

Eight months ago on June 19, the lead Minneapolis wheat contract settled at over $US5.00 a bushel.

Panic over commodity shortages continues to emerge as the dominant factor in the global markets, with both end user and speculative buyers of corn, soybean, cotton, rice and a host of other commodities taking note of what’s happening in the wheat pit.

While US has made improvements to increase crop production efficiency in recent years, the world hasn’t really put sufficient investment into production agriculture for several decades.

The net result has been declining stocks at the same time that expanding global wealth has demanded more raw commodities.

The net result on Monday was new all-time record high prices for corn, soybeans and wheat on the same day.

Sentiment in the marketplace is changing from, 'buying just-in-time' to one of, 'buy what you need at any price' and then to 'buy even more to restock the shelves'.

In other words, there’s evidence to suggest that we’re beginning to enter the hoarding phase of the inflationary cycle.

Along that line, commodity traders are attempting to hoard land on which to produce their respective commodities by bidding up prices in an acres war.

The market should remain in this phase until supply reaches surplus levels and everything collapses, similar to what was seen in the late-90s.

However, there’s little evidence at this point that the market will begin that collapse anytime soon, especially with the US growing season still weeks away and weather being as large as it’s ever been this year.

That doesn’t mean that there aren’t risks and that there won’t be large price swings similar to what have been seen in the wheat pits over the past six months.

But it does mean that end users and speculators alike, remain anxious to buy those price breaks when they occur.

Corn was largely a follower on Monday, reacting to sharply higher wheat and soybean prices.

Demand remains good, but most of the focus was with the above two commodities that are facing immediate supply shortfalls.

The real strength in corn is in the fear that other crops will rob too many acres from the feed grain, rendering it short in supply in the next marketing year that begins September 1.

Solid demand for soyoil and soybeans, especially from China, continues to fuel buying interest in the oilseed complex.

China is said to be buying both to fight food inflation and to build inventories ahead of this year’s Olympics.

Supply fears created by adverse weather in China’s rapeseed belt earlier this month, simply reinforced the sentiment.

The outright panic seen in the wheat pits today sent additional tremors through the oilseed market, where traders couldn’t help wonder if a similar scenario could be in its future.

The panic buying came on the day that Minneapolis lifted all daily limits on the March contract, hoping to ensure that the contract would enter into its delivery period in an orderly fashion on Friday.

Nobody wanted to be a seller in this environment, causing the lead contract to quickly surge above $23/bus.

The Minneapolis March contract eventually reached $25 per bushel, before correcting lower to $24 at the close, up $4.75 on the day.

The deferred Minneapolis contracts locked the expanded 90c daily trading limit higher for much of the day.

Limits on those contracts will expand to $1.35 tomorrow, beginning with electronic trade this evening (US central time).

Chicago and Kansas City contracts locked the 60c daily trading limit higher today, with those limits expected to increase to 90c.

(See separate Chicago report)

SOURCE: Farm Progress, US, a Fairfax Media publication

Note: There is a risk associated with trading futures and options. Anyone acting on the Farm Progress, US, information is doing so at this/her own risk.

Latest Comments 5 Comment(s) View Oldest | Newest First Page 1

Posted By: Carlos Wednesday, 27 February 2008 at 8:42:19 AM
Why be surprised?
Was it not planned this way ???
Who is deceiving who ????


Posted By: Cowcocky Wednesday, 27 February 2008 at 8:11:32 AM
Drew,
Do you live in Mosman?


Posted By: Hunter 1 Wednesday, 27 February 2008 at 2:05:18 AM
http://www.godlikeproductions.com/forum ... 419039/pg1
On the list of 100 things that disappear
before/during a panic buy,
grains and flours are listed number 10!
Milk prices are next to go up!


Posted By: ericswan Tuesday, 26 February 2008 at 11:55:37 PM
The grain shortfall has been apparent for the last two growing seasons.
It was exacerbated by Bush's policies but would eventually arrive at this moment none the less.


Posted By: drew Tuesday, 26 February 2008 at 7:32:48 PM
Now is the time for farmers to summer fallow, set aside land or manure plow down.
Supply and demand most experts now agree works.
Get the price of grain up solidly out of the reach of the fuel complex so we can use it to feed people instead.
Most of the grain is being used to feed livestock or SUVs not people.
We have the same people eating cereal in the morning, steak in the afternoon and driving their SUV in the evening.
We need to feed people.
That is what farmers do.
Big companies don't really care what you do with it as long as you make money.
They can recapture the drift profits back from the farmer on the input side so it's all good except for the starving.
Set asides will keep commodity prices up and inputs down, plus feed people.
This matches the supply and demand of "FOOD" in the pipeline so people can in fact eat.
That is what everyone is worried about right now, that and tight input supplies such as fuel and fertilizer and chemicals which are made of and with fuel.
If you put profits aside for a minute and look at what causes what it is pretty easy to solve this "rubiks cube" of food.
We need to share the money and the food to have a better world.
Question is, do we want to?

http://nqr.farmonline.com.au/news_daily.asp?ag_id=48995