NASHVILLE, Tenn. – Market analysts and farm leaders say it is only a matter of time before overheated commodity prices cool off and wheat is going to be the first major crop put on ice.
When that will happen is up for debate.
Analysts expect wheat to be first largely because the rise in corn and soybean prices is demand driven, while record wheat prices are the result of severe supply shortages.
The chief economist at the U.S. Department of Agriculture predicts commodity prices will level off over the next several years and so do American farm leaders.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
“All crops, corn, soybeans and wheat, will not be staying at the levels they are,” said Richard Ostlie, chair of the American Soybean Association.
“It might be two or three years on soybeans and corn. It might be a little less time than that on wheat.”
Robert Utterback, president of Utterback Marketing Services Inc., said wheat prices have exploded more than any other commodity due to tight global stocks but there are better odds of the supply-demand equation coming back into equilibrium with that crop than corn and soybeans.
Wheat is easy to grow, relatively cheap compared to corn and is planted in more countries around the world than corn or soybeans, increasing the odds of ramping up global stocks in a hurry.
For instance, he has heard reports that Russia is looking for farm managers to activate more than 16 million acres of fallowed land that could be planted to wheat this year.
The International Grains Council forecasts the highest global seeded acreage for wheat since 1998 and a seven percent increase in production assuming normal weather conditions.
But supplies are so depleted that Utterback believes prices will remain strong for a while.
“I think it will take two marketing years before we start getting stocks built up. I’m probably more concerned about 2010 wheat prices,” he said.
Tom Myers, director of alternative investments with WB Capital Management Inc., doesn’t see the same cautious outlook for commodity prices that others are predicting.
He noted that when corn prices were around $4 US per bushel last year many analysts thought the 2007 crop would be big enough to cause prices to plunge. Instead, prices rose as farmers delivered the biggest corn crop in U.S. history.
“When that happens you have to look at it from the other side and say, ‘What am I missing?’ ” said Myers.
Analysts underestimated the size of the exploding demand for coarse grains and oilseeds from India and China.
In 2002, there were 29 million consumers in those two countries who were spending $50 per day, what some consider to be the definition of the middle class. By 2008, that number is projected to rise to 139 million people.
“You can kind of see what’s got people all crazed in the commodity markets now,” said Myers.
Another factor behind his optimism is that with the weakness in equity markets, a lot of investment money is pouring into commodities like grain, gold and oil.
WB Capital tracks how U.S. agriculture companies are faring. In 2007, its fertilizer company index was up 116 percent, its agricultural equipment index rose 55 percent and its agricultural trading and processing index increased 18 percent. By contrast, the Standard and Poor’s 500 stock index fell 5.5 percent over that same period.
Myers said it is foolish to ignore what investors are saying with their dollars.
“I still think we’re kind of in the process of peaking grain prices,” he said.
He agreed with the other analysts that eventually yield-enhancing seeds and herbicides will boost grain supplies to an adequate level.
“In the meantime, you just look at the grain markets going up every day and at some point you just shake your head and try to get out of the way.”
