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What's driving the wheat market?

Agriculture.com Staff 11/30/2006 @ 3:23pm

Analysts differ on whether corn is leading the way for the wheat market. Global stocks may carry more influence, one analyst said.

It was as recent as 60 days ago that as the wheat market went so did the corn market. But, now with the demand for corn surging higher, some analyst see the corn market ruling all other markets. Yet, others see little linkage between corn and wheat.

Dr. Bill Tierney, John Stewart & Associates, said the market linkage between corn and wheat is the strongest during the summer months.

"I wouldn't link those two like people link corn and soybean prices because of the acreage allocation problems. I wouldn't hang my hat on being able to forecast wheat prices by forecasting corn prices," Tierney said.

Sid Love, Kropf & Love Consulting Services LLC., said the corn market is in the driver's seat.

"If you could tell me what the price of corn is going to be, I'll tell you the price of wheat. It's interesting to look at wheat but the key is corn," Love said. "If cash corn is $4.00 per bushel then cash wheat may drop to $4.50."

Love added, "I think the higher corn price will make us feed more wheat next year, but, the market won't run wheat down so far that all that is fed to livestock is wheat."

In addition, Love sees higher corn prices keeping U.S. wheat prices high enough to slow exports.

"When you run the price up the flag pole, you get fewer buyers," Love said.

On Thursday, USDA reported U.S. wheat exports 20% below a year ago.

U.S WHEAT EXPORTS TO PICK UP

While the USDA has projected overall U.S. wheat exports to be down 84 million bushels from last year's 1.0 billion bushel total, the current pace is 113 million bushels behind.

Tierney said the market is paying less attention to this fundamental. "I don't see the USDA export estimate being a problem for the market."

Tierney sees the tight global wheat stocks as being the driver of the wheat market. As early as one month or two, second tier buyers of the very short Australia wheat crop will turn to the U.S. for supply.

"The Australian Wheat Board is going to reserve their supply for tier 1 customers," Tierney said. There are a number of countries that have balked at buying anything but the bare minimum, or hand to mouth."

After already buying out the wheat supplies from the Black Sea, Europe, and other countries with cheaper priced wheat, the world supply will be gone and the U.S. will be able to sell at a premium, Tierney said.

In addition, another positive market driver is the U.S. dollar, Tierney said.

As the value of the U.S. dollar drops, wheat prices from major export countries pushes higher compared to the U.S. product.

"It's a minor factor, but still positive for the U.S. wheat grower," Tierney said.

Analysts differ on whether corn is leading the way for the wheat market. Global stocks may carry more influence, one analyst said.

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