Wheat Hype Driving Prices Up - Is it Real?

The focus of the media on the Russian drought, and to a much lesser extent, one in Ukraine, and an abundance of rain in Canada, has created a narrative for wheat that can no longer be substantiated, as traders and speculators move in on the news to make some quick money.

As some wheat farmers have said from past experiences, this is nothing new, and the driving of prices through the media reporting on weather has caused huge price fluctuations in the past, and will continue to do so in the future.

That does have them concerned as to what the wheat market really is, and makes it extremely hard to project how many acres they should plant for the spring harvest.

It seems obvious, as what is happening this summer is unprecedented as far as Russia goes, and is very unlikely to occur next year.

There are always pockets of weather that damage wheat and other crops around the world, and the abundance of plantings have easily made up for that, as many countries have increased the planting of grains in order to protect themselves domestically.

Farmers selling during this current run-up in wheat prices are profiting handsomely, but that has nothing to do with planting for next year, which historically after these types of situations, usually create far too much supply and prices come crashing down, after farmers optimistically make decisions on what is happening today, and then pay too much for the following year's inputs.

In other words, they usually break even if they're lucky, and in many cases, experience losses.

Is wheat experiencing a shortage of supply? For those countries counting on Russian wheat that's the case, but taking into account global supply, it's highly unlikely there's a shortage, and places like Egypt are simply buying wheat from other countries, including the United States.

Russian Drought Drives Wheat Prices Higher

Major crops like corn and soybeans are up to high price levels today from heat concerns in the Midwest, and wheat has joined the grains, as a drought in Russia has pushed wheat prices to their highest levels in 7 months.

According to the Grain Producers' Union in Russia, the grain harvest will drop by a minimum of 20 percent from 2009, to 77 million metric tons.

Wheat futures have surged about 16 percent so far in July, as concerns over corn has traders believing wheat may have to be used to feed livestock, driving up the demand.

That and a declining U.S. dollar has also made the grain look good to investors.

Wheat futures for September delivery rose 29 cents, or 5.2 percent, to $5.88 a bushel at a little after 10:00 AM CDT on the Chicago Board of Trade, after going as high as $5.985, the highest price for a most-active contract since Nov. 23.

If the weather improves in the Midwest or Russia, the price of the grains will plunge quickly. It's also yet to be seen whether the actual damage from the weather will have the dramatic impact expected on all these crops, as global supply has been high for several years, especially with wheat.

Marc Faber Likes Wheat

Agriculture Commodity Wheat is Cheap Now

Among agricultural commodities, Marc Faber favors wheat because of the fact it's “very, very cheap."

Talking of the best way to invest in wheat at this time, Faber said it's not through wheat ETFs, as the rollover costs connected to them makes the extremely expensive.

Rather, Faber advises potash companies or companies owning large amounts of farm land are better places to look. In some parts of the world think in terms of the word "plantations," which essentially are the same as farms, although they may operate differently.

The point is to have your money in companies with large land holdings that can be planted with wheat.

Agriculture Commodity Wheat is Cheap Now