$8.75 wheat says Citibank

[John_Walter]

In its latest forecast, Citibank sees wheat prices hitting $8 a bushel in the next three months, and rising to $8.75/bu over a 6-12 month horizon, according to a Dow Jones story this morning. Citibank sees soybeans hitting $13.50/bu, rising to $14.50/bu, while corn is predicted to reach $6/bu over three months and $6.50 in the next 6-12 months.

 "Wheat prices have rebounded to a four-month high on global weather concerns, which should continue to support the market over the next several months," the bank said.

These prices square with your planning?

John

[John_Walter]

The International Grains Council's meeting is being held this week in Perth, Australia. It includes traders, analysts and policy makers from the IGC countries.  The host country of Australia, a major wheat exporter, of course, is experiencing heavy unseasonal rains at harvest, which "may have damaged millions of tons of its crop," according to a Dow Jones "live" report from the meeting.

The report (click here) offers a number of interesting insights into the global grain situation.

Questions being addressed at the meeting include:  how much of Australia's crop will end up as animal feed grade; what's the status of GM wheat, and what are the changing patterns in global trade.

Because of global weather conditions, U.S. wheat exports may rise 50% in 2010-11, Vincent Peterson, Vice President at U.S. Wheat Associates, told the conference.

[GoredHusker]

When these places make predictions, they are talking about the futures prices.  Kansas City wheat is already well above $8 a bushel with new crop coming within 19 cents of $8.75 yesterday.  Corn has already been at $6.00.  The July corn contract was 20-25 cents from $6.50.  Basically, they're saying we're going to be range bound for the next 6-12 months which makes sense because we're 6-12 months away from new crop corn and soybean harvest. 

I'd be a lot more interested in hearing what their prediction for crude oil is.  We're at $3.10 gas right now and $3.30 diesel.  While helicopter Ben says there's no risk of a double dip, I'd bet money on there being one if fuel and food prices continue to escalate. 

[jrsiajdranch]

Gored I bought arctic blend fuel for the farm tank last week $3.05 per gallon.  Diesel for my PU at the local gas pump was $3.43 last week.  Can you say bend over?

[GoredHusker]

What is truelly ironic about fuel and prices is that we have the highest free stocks of crude oil and petroleum products since records have been kept which was 1990.  Last year was the previous record.  When I say record, I'm comparing it to the first week of December in each year as there have been individual weeks in other months higher but never has the first week of December stocks been higher.  We have stocks 110 million barrels higher now than we did the first week of December in 2008, yet crude prices now are well over 20 bucks a barrel higher today.  We always here it's because of the U.S. Dollar value, but in 2008 it was approximately the same value as it is today.  I wonder how all those struggling consumers in the Northeast are going to juggle higher heating costs, holiday costs, etc.? 

[Palouser]

A clear signal that things are tightening up are mentions of changing grain sourcing patterns that haven't been seen before - both wheat and feed grains. Russia and China maybe competing for corn in S America, and now ideas from S & SE Asia looking at Argentina for wheat. This pure competition. I've seen it in my own market area in the PNW. Egypt has come back in here in a big way after having drifted towards the FSU for a number of years. PNW export houses are maxxed out. Keep in mind that the Aussies are our direct competion out here and our crop was normal compared to the last few years when we were selling it all anyway. We didn't forsee a big wipe out of Aussie quality. The tension is rising in a big way.

As for planning. How do you plan for these kinds of changes? Only one way I know of - and that's to keep watching and changing a marketing plan that was flexible to begin with (and yes, I'm not a 'normal' marketer in that respect). I've kept changing my timing with the flow of developments. I moved most of last year's wheat crop to a load out terminal to clear bins and still own it. The bins are full. Some in town. Just as I would get ready to pull the trigger more news would come down the pike so I've delayed. I've taken out a small CCC loan on a bin of grain and reactivated my LOC so cash flow is fine.

I'm on the verge of pulling the trigger on some wheat for a contract for January but may wait a day or two, or not. But the global wheat trade dynamics are changing very rapidly and I don't see any escape hatches for bears at the moment. My $million question is what the future of the SA poduction might be. This will determine if we go to a '07-08 situation or just maintain a steady pressure on inventory. But Argentina has not been a reliable supplier for several years.

[Red Steele]

Not sure about the wheat cause I don't usually grow any, but I am holding out on the overrun bushels that I did not foolishly forward sell for prices somewhere like that, and to contract 2011 production for a similar amount.

THe bad thing is that these prices are going to kill demand, so the profits we wrestle out of these years may have to tide us over for some time when the market busts.

[Palouser]

What demand do you think will be 'killed' (I assume you are talking wheat)?

Global demand for wheat is almost constantly upward regardless of price. Production is what tends to vary. Thank GOD the worlsd was 'awash' in wheat (menaing the US had plenty, because we sure need it, and we can't know at this time whether we will be in a position to replace the supply. We probably will, but it may be a crucial matter.

Frankly my antenna are startng to tingle because production continues to get hammered. At this point we are at a crucial point for nest year. Winter wheat is the backbone of global wheat production. Basically what is planted is planted and outside of the EU there are serious questions as to the future of this years crop - much of which can still be resolved with a decent outcome. However, S America absolutely is the center of attention. If South Americ's weather doesn't straighten out, or if it gets more adverse, there could be real issues with supply and prices through the next year. It appears S American production of soy has plateaued for now.

[Red Steele]

I very seldom grow any wheat...maybe 40 acres every three years if that...but the corn demand depends on having livestock to feed it to. If we have a rally to $7 corn, and it stays there for any length of time, good luck finding animals that will eat the high priced stuff, unless meat rallies.

And what about all the South American land...I thought I read just a few years ago that there was far more land left to develop than the USA has in its entire production?

I definately believe that high prices will cure high prices. THat is how markets work when left alone.

[jrsiajdranch]

Your right red except our mkts. aren't being left alone!  Can you say QE 2? JR