With most crop prices falling, buyers are not desperate to get grain soon.
But one crop in the U.S. market has quietly rallied and buyers are bidding up prices to get that grain in their hands now.
Minneapolis nearby spring wheat futures have climbed recently and are in the rare situation of an inversion, in which farmers are paid more to deliver their grain now instead of holding it for delivery later.
Usually, the further out one goes in futures months, the higher the price.
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That cost-of-carry gives the farmer an incentive to store the grain on his farm or provides a discount to the grain user who takes it early in the year and has to store it.
The inversion looks like this: Minneapolis Grain Exchange December 2008 spring wheat futures were $6.49 per bushel Oct. 31, compared to $6.36 for the March contract, $6.35 for May, $6.39 for July and $6.44 for September.
Traders and analysts say the spring wheat inversion at the Minneapolis Grain Exchange, which is not shared by other crops in other markets, is the result of several factors.
“We still have a really low deliverable stocks situation in Duluth (Minnesota),” said Frontier Futures trader Austin Damiani.
That means companies with export commitments need to bid up the price to get the needed grain from farmers. That’s led to strong U.S. cash bids and good basis levels and that has shown up in the futures prices.
But farmers are reluctant sellers even at relatively stronger prices than for corn and soybeans.
“Farmer selling has been really slow,” said Damiani.
“The wheat grower had a great year last year, has some excess cash and they can afford to just keep using on-farm storage (until they see a price they like).
“There’s capacity and there’s not necessarily the financial need to sell it right away.”
Joe Victor of Allendale Inc. said real world demand for spring wheat is driving up nearby prices.
“There is demand out there, and in order for the markets to pry supply out of the farmers’ hands, there’s an inverse of the December over March,” said Victor.
“The ideal situation is presenting itself: a stronger basis and the inverted market in futures are definitely sending a signal that the market’s struggling to find bushels to meet demand, primarily from the Asian market.”
The inversion is a good sign for later strength in spring wheat markets in the U.S., Damiani said. Supplies should remain tight and farmers probably won’t be desperate to sell.
“Last year prices were so incredible that spring wheat growers cleared out their bins,” said Damiani.
“Now they’ve got extra cash and extra storage space.”
