New highs --- AGAIN!
Guys like me in the marketing field are getting used to writing the words "New Highs" in the past 12 months. Just when it seems like the market is coming to an end to how high it can go, BAM! It's higher!
Wheat is a case in point. With further drought stress in Australia, continued rapid exports, and just a minor indication that US planting is behind normal and here we go again. This time wheat has once again forged new all-world, all-time highs and re-written history again.
Soybeans aren't far behind, with a new high close tonight for umpteen years, and now the two food crops have got everyone's attention. Another interesting thing occurred in the past week - the US dollar moved to par value to the Canadian dollar. Wasn't long ago that people in the US looked down on the Canadian dollar as 'funny money'. Now, our currency isn't any better!
We've talked before how economic times are really combining to make grains the hottest investment on the planet, especially in terms of US dollars (which are perhaps one of the worst investments on the planet right now). It seems everyone wants to own grains, a trend started by the funds about a year ago, and now it's spreading almost everywhere.
Farmers have been burned by sales (any sale!) in the past 12 months of wheat, soybeans, or just about any other crop but corn. In fact, for most producers, corn is the only crop that is lower than it was at some point in the last year, and even corn hasn't spent much time above current price levels (especially distant futures months).
These farmers also are selling their crops for a lot more money than 1-2 years ago, and it is starting to make pockets a little more flush. The need to sell grain to generate cash may no longer be as important as it was in the past. Hoarding of grain as an investment might again become a popular habit among farmers, and one certainly can't argue with its success in the past 12 months. Funds have popularized the idea of owning grains as a US inflation hedge, and more and more people are jumping on this bandwagon.
It could become harder and harder to pry farmers fingers off of grain the longer this lasts. It could become an interesting situation with basis, which right now is absolutely awful to the point of being hard to believe. But then, a lot of grain has been sold ahead this year, and it's moving its way into the pipeline faster than ever. When farmers are selling at prices 20% higher than the highest price ever, its hard to even care about basis. But yet, those who do are likely to see a huge reward in the end, and usually basis is the 'easy money' in grains.
Could we see a 10-20c stronger than normal basis the last 6 months of the wheat/soybean marketing year? And even for corn, with our huge crop and projected 1.5-2 billion bushels stocks? With stocks expected to be tight for wheat/beans, even this seemingly impossible basis goal might seem 'small' come the final months of the year. With stocks small and 'hoarding' of grain a likely popular pastime by then, we could yet get our socks blown off by how strong basis can actually get!