Welcome to the best rally the wheat markets have seen in 16 years. It has even outdone the rally of 1988, when the Canadian Prairies and American Upper Great Plains spring wheat crops were scorched by drought.
July wheat prices at the Kansas City Board of Trade and the Minneapolis Grain exchange – which are part of the formula the Canadian Wheat Board uses to calculate its asking prices, and also it pool return outlooks – broke through $5 (U.S.) per bushel in early July.
With an 80-cent premium being paid for 14 percent protein dark northern spring wheat in Minneapolis, even cash prices are above $5 a bushel.
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Two main factors are driving this rally: A smaller U.S. winter wheat crop of poor quality and stocks in major exporting nations at 20-year lows, according to both the United States department of agriculture and the International Grains (formerly Wheat) Council.
Through most the 1980s, the international wheat market was trying to get rid of a surplus, even though years like 1988 caused temporary shortages.
Now, it seems prices must climb to ration an increasingly scarce supply.
Errol Anderson, an analyst with Palliser Commodities in Calgary, said the rally is also getting a boost from Canada’s low dollar.
In the last six months alone, he said the value of the U.S. dollar compared to Japanese yen and German marks has fallen by 40 percent. And since the Canadian dollar has fallen in lock-step with the U.S. dollar, the observation holds true here.
So even though prices may be at 16-year high when they’re tallied in U.S. dollars, North American wheat prices, or corn for that matter, are still competitive if you’re using yen, or marks or pounds sterling to do your buying.
“Prices domestically are high,” said Keith Ferley, analyst with Pool Commodity Trading Service in Winnipeg, “but internationally they are reasonable.”
Anderson said the relatively high value of their money means Canada’s European and Asian customers will be “stepping up to the plate” when the market sells down.
And when that inevitably happens, the combination of historically low stocks and willing buyers will support prices, Anderson said.
Both Anderson and Ferley speculate there’s room for prices to move higher.
“It’s a seller’s market,” Anderson said. “Buyers know that, and that makes them willing to pay.”
