Severe winter storm fuels fire in surging wheat markets, February 8, 2011
by Jay Sjerven

Bookmark and Share

KANSAS CITY —Wheat futures prices climbed to new contract highs last week, surging as a historic winter storm raged across most of the United States east of the Rockies.

Wheat prices were at the highest levels ever but for the extraordinary highs reached in 2007-08.

Blizzard conditions were common across an astounding front that stretched more than 2,000 miles, and the weather appeared to spook markets already strengthened by a tightening supply-and-demand picture for wheat.

Minneapolis wheat futures prices surged above the $10-per-bu mark, and most contracts in Kansas City were within a stone’s throw of double digits late in the week. The contract high in the Kansas City March contract of $9.61½ per bu was up about 50c from the previous week’s close of $9.12 and was up 37% from recent lows reached about 10 weeks earlier, in mid-November.

For flour buyers, millfeed markets in recent weeks added insult to the injury inflicted by wheat futures. Millfeed prices have tumbled in recent weeks. Because millfeed prices are a credit against flour prices, millfeed price movements have an inverse effect on flour prices. Normally, rising millfeed prices buffer the impact of rising wheat prices on finished flour prices. Over recent weeks, though, millfeed prices have declined as wheat futures prices have climbed, the worst possible combination for flour buyers. The declines were wider in nearby delivery positions than was the case in the spring months.

Spot prices for hard winter-spring blends late last week were $22.50@22.60 per cwt, up nearly $3 from mid-January. Prices for spring grades and soft flour have advanced more than $2 while semolina prices have surged $5.

It was not clear last week, though, whether the severe winter weather would create major difficulties for the 2011 winter wheat crop.

A tremendous silver lining to the winter weather’s wrath would be a boost in snow protection for the winter wheat crop and increased moisture for the spring. This certainly was the case in many key areas. But once again, western areas of the hard winter wheat belt, in particular, western Kansas, western Nebraska and eastern Colorado, seemed to miss out on most of the moisture even as temperatures plummeted. Crop conditions in several of these areas already were poor to very poor because of dry fall weather that did not allow the newly planted crop to establish well.

Beyond the cold weather, wheat futures prices have been propelled upward by concerns about political unrest in Egypt and beyond. While much of the strength associated with this turmoil was described as a “psychological” influence on markets, wheat tenders in recent weeks by affected countries reinforced concerns that governments will be particularly aggressive in ensuring their populations are well fed, even as food prices move higher. Outstanding among these transactions was the purchase by Algeria of 800,000 tonnes of wheat against a tender that initially requested offers on 50,000 tonnes.

This expectation of stronger exports played into another market feature evident in recent weeks — the heightened importance of the U.S. as an export wheat source in 2010-11 because of crop problems elsewhere.

Wheat quality conditions in Canada have been prompting that country’s customers to turn increasingly to the United States over the past few months. The recent deterioration of Australia’s crop added fuel to that fire, contributing mightily to the price strength over the last two months. Nearly 40% of Australia’s record wheat crop has been assessed as feed quality, dramatically diminishing that country’s potential as a source of milling wheat in 2010-11.

Against this backdrop, updated supply-and-demand figures from the U.S. Department of Agriculture, set to be released Feb. 9, were anticipated with some anxiety. In January, the U.S.D.A. raised its estimate of 2010-11 wheat exports to 1,300 million bus, up 50 million from its December forecast and up more than 30% from the department’s initial forecasts for exports this year. At 1,300 million bus, U.S. wheat exports would be up 48% from 881 million bus in 2009-10 and would be the largest exports since 1,354 million bus in 1992-93.

Bookmark and Share
Add a Comment
We welcome your thoughtful comments. Please comply with our Community rules.
Email Address:
The views expressed in the comments section of do not reflect those of or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.
Enter code as it is shown (required):