It’s the middle of the winter and few people are talking about how weather might affect the markets next summer. Everyone knows that supplies of all grains and oilseeds worldwide are in very tight supply. Those analysts who are trying to figure out what next year’s crop production might be are already factoring in trend line or better yield forecasts.
The Minneapolis spring wheat futures markets have been on fire lately. In fact, the March contract traded up the 30 cent limit several days in a row. On some of those limit up days it could have traded as much as 60 cents higher. Wheat futures markets in Chicago and Kansas City have not been nearly as strong. The difference is that we are going to get very close to actually running out of spring wheat before the next harvest. Supplies of winter wheat are tight, but not as small as spring wheat.
The bullish news continues to flow in to the commodity markets. The latest blast of bullish inputs came from the January series of USDA reports. These reports showed bigger corn consumption than expected and reduced corn ending supplies by 359 million bushels. The USDA winter wheat plantings estimate also showed that hard red winter wheat acres were much smaller than expected.
For years one of the primary tenets of marketing has been to pay attention to basis levels because they can make a big difference in the price you receive for your crops that have a basis. You have to have a futures market to have basis because the basis is the difference between the cash price and the futures. It was not uncommon to have 20- to 30-cent changes in the basis. That was a lot when corn was below $2 a bushel and wheat was below $4 a bushel and soybeans were around $5 a bushel. It isn’t a lot any more.
January 24, 2008
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