Tight wheat supplies are driving prices to all-time highs

Wheat supplies are tight and getting tighter, driving prices to all-time highs, and yet non-U.S. buying continues. “Countries that passed at $6 and $7 dollars are now buying at $8. It has gone parabolic,” says Stephen Davis, senior market strategist at RJO Futures. “Wheat has always been a political market, but it starts with supply and supply has been dented,” he says. During October, he says wheat will trade between $8.80 and $8.20 per bushel. “It’s a big market and we are going to have a big range in October.”

Jerry 0. Gidel, analyst for North America Risk Management Services Inc., says production has suffered in France, Germany, the Czech Republic and Hungary, creating an arb opportunity, and that U.S. prices are still playing catch up. In addition, smaller Canadian and Australian crops will only help to keep prices high.

“We could potentially see a world decline of five to seven million metric tons or more,” Gidel says, and carryover, currently at 114.8 million metric tons, could dip as low as 110 million metric tons. “That would be quite positive and relate to renewed buying from the overseas buyers.” With those fundamentals at play and the arb opportunity with European wheat, he says prices could continue as high as $9.30, with support between $6.80 and $7. But high prices are driving 2008 plantings. “Once the new crop begins to show its hand, then it might be able to slow down here,” adding that next year, we could be well supplied in the $6 to $6.30 zone.

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