Chicago nearby wheat futures topped $10 US per bushel for the first time ever early this week on worries about tight supply and technical momentum.
Hard spring wheat prices are even higher, with Minneapolis wheat futures climbing past $11 per bu. for a while in recent days.
As can be seen in the accompanying graphic, it has been clear for some time that wheat stocks this year are tight. The spark for the latest rally came last week when the U.S. Department of Agriculture trimmed its year-end U.S. stocks forecast to a near 60 year low and export figures showed that despite the high prices, buyers are still in the market.
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In the past, high wheat prices would limit consumption, and the poorest of the poor are still struggling today, but booming industrial growth in many developing countries has made it possible to maintain demand even at high prices.
Prices will likely remain volatile until there is more solid information about the size of the 2008 crop.
Already, expectations are for significantly more wheat production globally next year and even as old-crop futures jumped to new record highs, new-crop futures were dipping.
The dry U.S. winter wheat belt got moisture last week, improving the prospect for that crop.
Worries had been growing about the developing La Nina weather system, which tends to limit precipitation in the U.S. plains. The USDA releases its winter wheat seeding report Jan. 11.
Another factor for new-crop wheat prices in the United States and Canada is the strength of soybeans and canola. Wheat must keep up with oilseed prices to avoid a big switch to oilseeds next spring.
The wheat crop in the European Union has been seeded on a larger land base and so far is developing well. French analyst Strategie Grains put the EU’s soft wheat crop at 129.3 million tonnes, up 15 percent on 2007, based on larger acreage and expectation of normal weather. This year, heavy rain late in the season hurt European production. For more on the EU crop, see page 44.
But the start of the wheat growing season has not been so favourable in India, one of the world’s top wheat buyers the last two years.
The official Indian government forecast is for 75.5 million tonnes, up from 75 million harvested this year.
But the country has faced hot dry weather since the end of the monsoon season.
The area seeded to wheat so far is about 51 million acres, down about eight million from last year at the same time, but could still match that figure if it rains in the next week or two.
The Indian government encouraged wheat seeding this year with an improved floor price and assistance with input costs. A big increase in seeded area was expected, but the weather has worked against that. So, too, have rising input prices, which have taken much of the profit out of growing wheat in India.
A lot of wheat in key growing areas is irrigated, but dryland production will suffer if rain does not come.
The weather also reduced the area seeded to oilseed mustard. Pulse seeding is almost seven percent down from last year at the same time.
The critical period for Indian crop growth is still two months away, but the early going is not optimistic at a time when the subcontinent needs big crops to control rising food inflation.
The Canadian Wheat Board sold a million tonnes of wheat to India last year and 350,000 tonnes so far this year.
