Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
High Prices Beget Higher Prices
Why are commodity prices rallying for corn, soybeans and wheat? The answer appears to be twofold. First, severe drought in Russia and Eastern Europe is leading to a significant reduction in world production for wheat. Traders fear that Russia, a major producer, will stop grain exports to protect domestic supplies. Russia has slashed its wheat harvest forecast to 70-75 million metric tons from 90 million and the International Grains Council has cut its global wheat production forecast for 2010-2011 to 651 million tons, down 26 million tons from 2009-2010. Second, since June non-commercial traders have moved from being net short to net long the wheat market. Yesterday alone, traders added 15,000 long positions in the wheat market amounting to 75 million bushels in just one day of trading. The rally in the wheat market is having a spillover effect on both the corn and soybean markets, providing pricing opportunities for both this year’s and next year’s anticipated production not likely to have been available at the present time without the run in the wheat market. Overnight, nearby Chicago SRW wheat contracts closed up the 60 cent per bushel limit.
Russia exported 18.39 million metric tons of wheat in the ‘08/‘09 marketing year; 17.5 MMT in the ‘09/‘10 marketing year; and were projected to export 17.5 MMT in the ‘10/‘11 marketing year. According to Reuters news service Russia has announced that they are suspending their exports to protect domestic supply.
How long will the current rally last? Although the answer to that question is not known, the chart given below suggests the correct answer to that question to be not long. If the old adage ‘buy the rumor – sell the fact’ applies, the current rally may be subsiding soon. SRW wheat prices for the Sept ‘10; Dec ‘10; and March ‘11 futures contracts opened up the 60 cent limit in this morning’s trade, and were showing signs of slackening at 11:20 a.m. EDT.
Source: DTN
Market Strategy
Since the current price levels have entered the top third of the price range(s) for corn, soybeans, and wheat it is a good time to get some additional pricing done, if not for this year’s production – then for next year. Currently, Dec ‘10 corn futures are trading at $4.32; Nov ‘10 soybean futures at $10.44; Dec ‘10 SRW wheat futures at $8.15; Dec ‘11 corn futures at $4.45; Nov ‘11 soybean futures at $10.24; and July ‘11 SRW wheat futures at $7.89 per bushel. The question always arises as to how much pricing should one get done? Considering the stocks –to-use ratio for corn, not more that 25 percent of next year’s corn, perhaps 25 to 30 percent of next year’s soybeans, and 50 percent of next year’s wheat. For this year’s production, now is a good time to complete pre-harvest pricing for corn and soybeans, if not done so already.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.