Soybeans, Wheat Continue to Romp

I keep saying crops today are where crude oil was in 2004; it is jumping madly, people are asking why, where, how? And how high could it go? We continue to see unprecedented moves, and a reader told me that on Friday even CNBC started plugging Powershares DB Agriculture Fund (DBA) - as usual 6-9 months late! But while I do expect a pullback somewhere along the way (and probably it will be quite a hectic one considering all the hedge fund money piling into the area), I think any pullback will be a buying opportunity as we are headed for some major food supply issues that the world is not prepared for. As I've written in the past expect some countries to begin restricting exports; in effect hording. Which takes even more supply off the market. Yet another one apparently began today.

• European wheat prices jumped more than 2 percent in early trade on Monday after worries over supply propelled U.S. high-protein spring wheat to a fresh record and lifted all wheat contracts in their wake.
• U.S. spring wheat on the Minneapolis Grain Exchange surged above $20 per bushel on Monday, extending recent gains and setting a record high for any U.S. wheat contract.
• Chicago soybean futures and all contract months for European rapeseed also hit record peaks, with Chinese demand prompting active follow-up buying in the case of soybeans.
• Agricultural commodity markets were continuing to benefit from speculative buying by funds wary of some asset classes.
• On the world stage, traders were watching Kazakhstan's plan to curb grain exports by imposing a customs tariff from March and reported drought in China's wheat belt.
• "The Minneapolis price broke through that significant level and Chicago prices are chasing the move," said Kenji Kobayashi, grains analyst at Kanetsu Asset Management. "Wheat is at an unprecedented level, but further gains are expected as long as fears over shortages in spring wheat are there. The strength in Minneapolis will keep others buoyant."
• U.S. wheat stocks are projected to fall to their lowest levels in 60 years by the end of the 2007/08 marketing year on May 31, after shortfalls in several world wheat regions in 2007 steered export demand to the United States.
• China's Xinhua news agency said some provinces in the north, the country's wheat basket, were suffering from drought. But analysts say it seems unlikely China will be a net wheat importer in the near future given ample stocks. Still, the areas hit by drought included China's top soy-producing province of Heilongjiang, fuelling concerns over increased soy demand from China.
• China, the world's top soy buyer, has been buying U.S. and South American soybeans as well as vegetable oils to meet its food needs, traders said. China is experiencing its highest inflation in 11 years, largely driven by higher food costs. Despite inflation, China needs to keep importing, even at record high prices, rather than risk shortages, analysts said.

Long Powershares DB Agriculture Fund in fund and personal account