Wheat Futures are Up – Cash Market is Barely Up
It appears as usual that there is a buying frenzy in the wheat futures market that has not totally transferred over to the cash market. Since early June, the Wheat Futures market has gone up by about 80% whereas the cash market has gone up by much less leading to a large widening in the basis.
For example, the wheat futures on Thursday locked limit up at a 60 cents gain while the CIF bids for August fell 10 cents per bushel and September bids fell 30 cents per bushel.
Unlike 2008, there is ample wheat stocks in the US (at a 23 year peak) and there are supply disruptions from the Russia and Ukraine regions, however, we will see a drop in wheat futures prices if cash prices do not rise.
Most of this rise is wheat futures is attributed to the massive fund buying. Just on Thursday alone, the funds purchased a net 20,000 contracts which is equal to 100 million bushels. This led to the increase in wheat prices on Thursday, but this price will drop once the funds sell these contracts.
US Wheat stocks are at about 30 million tons which is more than twice the amount of production loss from Russia.
The bottom line is that wheat prices are up, but I would not expect a repeat of 2008.
For more information, please see this article posted at Reuters.com.
Please note I originally wrote this on August 6, 2010, but it did not get posted until now by mistake.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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