- U.S. wheat prices surged to more than $10 a bushel on Chicago futures exchanges Tuesday, while hitting a record on the smaller Minneapolis Grain Exchange, as Canada reported tight stockpiles and millers scrambled for supply.
- Overall, wheat prices have doubled since last June at the Chicago Mercantile Exchange (CME), which owns the Chicago Board of Trade. Prices have been pushed higher by surging world demand and bad weather in some major producing nations.
- "For the near-term price, it's still heading higher," says Joe Victor, vice president of marketing at Allendale, a commodity research firm. He says prices will stay elevated until the markets get a better handle on potential production in coming months. "If we have good weather, plenty of plantings, then there's likely a price correction," Victor says. "If it's bad weather … (prices will) continue their upward trends."
- At the Minneapolis Grain Exchange, the March contract for spring wheat closed at $14.63 per bushel — an even steeper price gain. High-protein spring wheat, prized by millers and bakers for its quality, is forecast to have the smallest surplus in at least 30 years, and harvest doesn't start till August.
- Trading was influenced by a Canadian government report showing the wheat supply in that nation plummeting 30% from December 2006 to December 2007. The sharp drop was mainly caused by a more than 20% dip in wheat production last year.
- The U.S. Department of Agriculture expects the U.S. wheat surplus this year to be the smallest in 60 years. Despite higher prices, U.S. plantings of winter wheat rose only about 4% from last year. Farmers had been expected to increase plantings by far more. (They're too busy planting CORN!)
- Prices for corn, soybeans and other grains have also surged in recent months. That helped push U.S. food inflation up to 4.9% in 2007 from 2.1% in 2006. The impact has been far greater in less-affluent nations, where people spend more of their income on food.
- Merrill Lynch analysts in a recent report said the rate of what they call "agflation" could slow if economic growth cools. But costs will remain elevated. "Longer term, however, we remain convinced that agflation will be an important issue for consumers and policymakers alike," the Merrill Lynch report said.
Long Powershares DB Agriculture Fund in fund and personal account
5 comments:
All good news for DBA! Thanks for the update.
You can't stop corn; you can only hope to contain it.
I also own DBA for all the reasons you've listed through multiple blog posts. What are you keeping an eye on as the signal(s) to cut back though?
Nothing. I won't be cutting back. I am sure in general market panic it will sell off, but the underlying trends are not changing.
I am using it as my Altria (the safety stock) and as a hedge against inflation etc etc. I need to be long something and this is the best thing I have for "safety". I'd have to see mass migrations in China back to the countryside from cities, I'd have to see India institute a law like China (only 1 child per family), I'd have to see an ethanol bill reversal in the US, etc.
I think food is going to be a crisis and we are at where oil was in about 2003. Only this time its something that affects the whole world, not just oil consuming giants of 8-10 countries.
Again, in full fledge panic people will sell it I am sure - I will buy more on their panic.
That's what I was thinking, but wanted to make sure I wasn't missing something.
I like your blog and reading your analysis!
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