All-time highs and more all-time highs
What more can one say to describe the price action but 'new, all-time highs'? As we witnessed this historic event in the wheat complex last week and the surge to new highs over the weekend, there is still plenty of reason to think that these highs won't be the last ones we see on this run.
This has been an amazingly orderly rally, with gaps that usually hold their gains, and when they don't, the reversals are minor and with little fanfare. We don't have the volatility on high volume that you'd normally see at extreme prices, or the aggressive selling of those who would believe that the high is in. We've seen corrections, but the breaks have been well bought and record high prices have not deterred the bull.
India's purchase over the long weekend of 795,000 MMT of wheat was 50% higher than what was originally offered with the average price around $389/MMT. One can only imagine how painful that must be, considering that last May they passed up offers for only $296/MMT. These sales won't be from the US, but the drawdown on world stocks will certainly be felt here with the night session limit up in both Chicago and Kansas City.
The bull is alive and well. These price levels are clearly not rationing supply, something few would argue needs to happen- and soon. US export sales also continue to defy the rationing definition as well, with sales roughly double that of last year.
With Russia tossing around the idea of limiting exports because domestic bread prices are too high, the US could find itself the only export game in town for awhile. Obviously, our supplies are quickly dropping, too, which means world prices would certainly move higher still.
This wheat market transitioned from a Northern Hemisphere supply scare to a demand driven market fairly smoothly, all the while with prices continually pushing higher. Now, the market is faced with another supply scare with the Australian crop situation, which looks bleaker by the day. They desperately need rain but haven't had the soaking rains that would begin to break this drought cycle.
Argentina is also dry in key wheat areas, but rains are forecast for next week and, if they materialize, would get that crop off to a good start. They are just beginning their growing season, so they've got more time for rains to help their crop along.
With wheat prices soaring to new highs because of demand and another supply scare, it's unlikely that the wheat market will break significantly until the Southern Hemisphere's crop is well on its way to the bin. So while this wheat complex will get plenty of price action and probably plenty of reversals, the fundamentals will stay strong, at least for old crop wheat, until the market has a better idea of the Southern Hemisphere's crop.
The market is also keenly aware of the certain increase in wheat acres worldwide. New crop prices for '08 and '09 were the first to feel the heat on Friday, and will likely be the least to move higher if we do indeed get more rallies. Those would be the first markets one would look to sell, as they shouldn't get as caught up in the volatility as the '07 crop.