Analyst advises caution, tells farmers to watch the market
By MATTHEW WEAVER
Weather problems around the world continue to drive up wheat prices, but whether the weakened world economy can sustain high prices is debatable, industry experts say.
The global supply-and-demand picture for high-quality wheat will continue to tighten, Darin Newsom, senior analyst for Telvent DTN, said. As a result, some U.S. wheat prices are approaching $8 per bushel, nearly $2.50 above last year's prices.
"The market is moving back into price levels we seldom see," Newsom said. "I'm not expecting that to die down anytime soon."
Floods in Australia and dry weather in Ukraine have hurt the crops and the quality of wheat produced there, he said.
"There's going to be more feed wheat," Newsom said. "This is going to create demand for higher-quality, high-protein milling wheat."
The U.S. has the largest supply of high-quality wheat, he said. Demand is up for quality in almost all classes of wheat, including soft white wheat vital to the Pacific Northwest, Newsom said.
"How high is high, pricewise?" asked Raleigh Curtis, grain position manager with Mid-Columbia Producers in Moro, Ore. "We don't know how much higher the price can go."
Speculators are currently willing to pay a premium over current prices, Curtis said.
How can farmers take advantage of the outlook?
"The first thing the farmer needs to decide is what price is a really profitable price he would be happy to sell and go to the bank with," Curtis said.
Curtis recommends closely watching the market.
"The value of the market is never discovered until the last bushel is traded," he said. "Everything else to that point is speculation."
Newsom advises farmers to be cautious in their forward contracting, but acknowledged it can be risky, as yields can vary greatly.
"If you want to lock in some of this, just be a little conservative on your figuring and what percentage of your projected production you're going to forward contract," he said.
Pendleton Grain Growers grain merchant Dan Steiner believes the majority of the 2010 crop has already been sold. Looking forward to the 2011 crop, he advises farmers to take opportunity where they can find it.
Prices could climb, but the world economy is not in as good a shape as it was in 2008, so it may not be able to sustain them, Steiner cautioned. The Food and Agriculture Organization of the United Nations anticipates world food prices will be much higher in 2011, and they are at or near record highs already, Steiner said.
Ukraine and other regions of the former Soviet Union did not get all of their winter wheat acres planted because of dry weather, and Steiner expects winterkill losses.
In the U.S. southern plains, most of the winter wheat crop has encountered quality issues or winterkill, Steiner said.