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.

Wheat Prices Drop as Corn Streak Ends

After concerns over the corn harvest in the Midwest was alleviated with a positive weather forecast of wetter and cooler, corn prices plunged, and wheat prices followed them down, although at a modest level.

Concerns over the drought in Russia have brought support to wheat prices, along with other weather concerns around the globe.

But as in other recent years, so many countries have started growing wheat successfully, that the supply has outstripped demand, keeping prices under pressure for years.

Now the idea that wheat may have to replace corn in animal feed will probably be laid aside, putting more downward pressure on the price of the grain.

Wheat for September delivery dropped 5 cents to finish at $5.8225 a bushel.

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.

Wheat Futures Prices Fall

Wheat Futures and Wheat Inventories

I've been watching this story unfold for the last couple of years, and it's no surprise that so many wheat farmers have plunged into planting more wheat acreage after the great prices in 2008.

The problem is it was those who had wheat in the fields that year which prospered, not the followers you predictably followed up with large plantings which were assuredly going to drive wheat prices down; and they have.

Again wheat prices fell, as the U.S. dollar increased in value, making export demands fall in the U.S.

The drop of 14.75 cents a bushel to $5.045 on the Chicago Board of Trade was the worst since February 3, and there's really nothing in the fundamentals which will change this for wheat or wheat farmers; or wheat investors for that matter, as couple that with strong wheat inventories around the world and there's little out there that could change this situation.

Farmers need to grow something else if they want to generate profits, not follow the herd the year after great prices were attained.

Wheat Futures and Wheat Inventories

Commodities: Drought Devastating Argentine Wheat

Argentina, another country that relies heavily on commodities to succeed, has been devasted by a drought which has crushed their wheat market. It is also decimating their cattle which rely on the grain for food.

This is the worst year for lack of rain since 1971, said one Argentine meteorologist. As usual, competing national weather forecasts make the situation unpredictable, as they contradict whether rain will come or not, and whether the drought will continue.

While some farmers in the U.S. were eyeing the situation with interest, hoping to get their wheat out of storage and make some money on it. That may not be though, as even if Brazil buys some wheat from the U.S. because of Argentine companies not being able to provide it, the cancellation of Nigerian imports of American wheat makes it difficult to see any value to wheat farmers in the U.S. It'll keep prices from rising in any significant way. Wheat futures fell when the Nigerian cancellation became public.

A continuing steady diet of bad weather could make a dire situation for agriculture in Argentina even worse, as they're already projecting losses of $5 billion in the overall sector for this year alone.

Other commodities being decimated are soy, corn and beef. Many cattle are dying for lack of food, as farmers do everything they can to keep them alive. Even if they succeed, breeding will be difficult because of lack of nutrition to the animals.

In many places the wheat storage bins are empty, and farmers have nothing but the cows to fight to keep alive.

The news out of Argentina is the wheat harvest could plunge by 44 percent for the 2008-2009 wheat season, while corn is projected to suffer a 27 percent drop, and soy, which is more resilient, is in the best shape in Argentina, looking for a 7 percent increase.

Because wheat in storage has been dwindling, and cattle dying of starvation, the government has temporarily suspended the minimum weight for slaughtering livestock so farmers can sell their livestock before they die.

On the assumption wheat from the U.S. may be imported by Brazil, prices increased some on Friday, but soy and corn prices were volatile, even though the numbers will fall significantly from earlier estimates from Argentina.

This news is grim for the country, as the entire agriculture sector is suffering, and so the nation. With wheat storage bins empty, as well as soy and corn underperforming, it's going to be a tough year for Argentina, as it struggles just to stay afloat.

While other commodities have been surging lately, many grains will struggle to maintain prices, especially wheat, as the dry weather in Argentina continues.

Commodities: Wheat Prices Drop Three-week Low

Wheat prices fall as commodity grain production increases

Wheat for December delivery dropped to $5.372 a bushel today on the Chicago Board of Trade, as global production has increased significantly, and India announced it would be offering 2 million tons of wheat to its neighbors, putting more downward pressure on the worldwide market. That's the lowest price level in three weeks.

The U.S. Department of Agriculture report on export sales data is expected to confirm these facts, and wheat could fall even more.

Wheat exports for the week ending October 30 are down a huge 40 percent from the week ending October 23, falling to 13.2 million bushels.

Global wheat production is projected to grow 12 percent through June to 683 million metric tons or 25.1 billion bushels.

A little hope has emerged as dry weather in Argentina may help keep wheat prices from falling too much.

But even with some of the drought conditions in China putting a little pressure on wheat commodity prices and wheat futures, it won't be enough to push wheat prices any higher as there was so much wheat produced and on the market this year, that even dry weather and drought conditions hasn't been enough to push commodity grain prices up, including corn futures, soybean futures, and wheat futures.

Commodity traders will have to look at some of the base metal futures and the oil contango for not only a haven for their money, but a place to make some money in the commodity and overall market in 2009.

Cuts in Agriculture Research Budgets Underscore Limitation of Government

It's hilarious to see one special interest group whine about the cut in budget because another special interest group is getting the money. What it does is show the vast limitation that government really has, and the consequences in counting on taxpayer money to fund your pet projects.

One person griping about cutbacks is Dr. Yue Jin, who is marketed as the only federal scientist whose main purpose is to ensure the protection of the $17 billion U.S wheat crop. What a crock.

This is so pathetic and disingenuous, that it stinks.

In an attempt to siphon funds from other special interests, it is made to look like the wheat across the world is in danger of extinction, as a new strain of fungus has emerged.

What's even more disingenuous is the blaming of floods, drought and high fuel prices as other elements in driving up fuel prices, without another government mandated program: subsidies for the disaster of ethanol, being named as the major culprit.

All of this shows that government isn't meant to be the end-all answer to problems, and those that rely on it as if it's God, are in for serious disappointments, as not taking into consideration its limitations is a huge mistake.

The wheat crop isn't going to succeed or fail because a government research program on wheat is cut back. It'll fail more for the interference of government in creating an artificial market for corn-based ethanol than anything else.

The best thing to do is for government to stay out of these situations, and let the market decide what it is they want. We continue to bear the brunt of government limitation and interference, as the usual unintended consequences continue to rear their ugly head.