With wheat prices shooting up to record levels on U.S. futures markets, some analysts are predicting a reversal.
Wheat market analyst Bill Tierney isn’t one of them.
He doesn’t care how fast prices have risen; there’s still a bigger story to tell.
“There’s stuff out there on the demand side and maybe some stuff on the supply side that I think have yet to reveal themselves, which will push prices higher,” said Tierney. He was the lead wheat market analyst with the United States Department of Agriculture’s World Agricultural Outlook Board until recently returning to the private sector.
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Minneapolis Grain Exchange hard red spring wheat futures for December have shot above $5.20 per bushel, a surge of about 80 cents per bu. within the last month and a new record for this calendar year. The last time wheat prices were this high was 1995-96, which was a record price year.
There are many supply-side reasons for wheat’s price strength that have captivated the market: wheat stocks-to-use ratios are comparatively tight; the Australian crop is suffering from drought and parts of Argentina are dry; U.S. hard red winter wheat areas are dry and in some areas farmers are “dusting in” the crop; Black Sea exporters are holding on to their crops rather than exporting them.
But the sudden price rise has rung alarm bells in some analysts’ minds because of its volatility.
Such a surge is often the sign of a peak that will soon collapse, and many advisers are urging farmers to take advantage of today’s prices before they evaporate.
Tierney isn’t impressed by the dangers of a correction based on technical indicators.
“There’s always going to be talk that the market’s going to pause, the market’s going to correct, the market’s going to supposedly reinterpret information differently, but I believe there are a number of factors that have yet to reveal themselves,” said Tierney.
Those include pent-up demand from Iraq, Nigeria, Brazil and even India. The first three have all been “hand to mouth” buyers, meaning they have been buying only for their immediate needs, not building stocks. If anything scares them, they may rush to buy up stocks.
The Indian government has stated it does not want more wheat imports after buying about five million tonnes in recent months, but its needs might force it back into the world market regardless of its desires, Tierney said.
Egypt is back in the market, eating up world stocks.
Tierney said problems in Australia and Argentina as well as around the Black Sea mean increased demand may hit the market at the same time as decreased supply.
“That would add another major round of fuel to the wheat market,” he said.
That’s good news for anyone holding wheat stocks, such as Canadian farmers.
“I expect they’ll be happy,” said Tierney.
