The factors that have many believing grain prices will remain strong this year despite an economic slowdown in the United States showed themselves last week.
Underlying everything is the fact that grain and oilseed stocks are exceptionally tight.
Many countries have inadequate grain stocks and are worried about rising food costs. They will buy grain anytime they see a bargain.
A weaker U.S. dollar and falling ocean freight rates provided that bargain.
This was revealed in strong U.S. grain export sales last week. The weak economy has been depressing the U.S. dollar for more than a year. To stimulate the economy, the Federal Reserve dropped interest rates last week, putting further downward pressure on the greenback.
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That makes it cheaper for grain buyers to pick up American grain.
Also, a combination of slowing world trade and the launch of new ships is pushing down global shipping rates. This, too, makes it cheaper for overseas buyers to buy American grain, stimulating demand, that in turn supports grain prices.
Corn and soybeans are only slightly off their highs and nearby Minneapolis wheat futures have been on a tear, rising to almost $13 US per bushel Jan. 28. New-crop December 2008 wheat futures were trading above $10.50 per bu.
The recent runup was based on two factors: strong exports despite record prices and the need to convince farmers to seed more wheat this spring.
Analysts believed crop prices in early January would cause northern plains farmers to turn to corn or soybeans rather than wheat.
But since the beginning of January, the December 2008 Minneapolis price has risen about $1.50 per bu., or 17 percent. New-crop Chicago corn futures have risen about six percent and new-crop soybeans seven percent. So wheat has gained on its competitors, perhaps adding acres this spring, but it is not out of the question that spring wheat could rally another $2 before seeding.
We may not have seen the last of the increases for the Canadian Wheat Board’s Pool Return Outlook.
The snowstorms in central and eastern China that I mentioned last week have continued and worsened. They are generating headlines mainly because of the disruption to transportation during the Chinese lunar new year holiday and because of power shortages.
Crop details are scare. The official Xinhua news service says 10.4 million acres of farmland have been “affected.” The grain crop should be dormant now. But there is a possibility that snow and ice could smother some crops. On the other hand, improved moisture might be good for crops.
