Wheat enters bull market as Ukraine turmoil boosts US exports
CHICAGO — Wheat futures, off to the best start to a year since 2008, entered a bull market Wednesday as shipping delays in Canada and Argentina and turmoil in Ukraine boost prospects for U.S. exports
U.S. sales for delivery before May 31 rose to 28.721 million metric tons as of Feb. 27, up 23 percent from a year earlier, data from the Department of Agriculture show. A backlog in Canadian rail shipments that cost farmers about C$2 billion ($1.8 billion) may not be cleared until September, a farm group official said today. Argentina's exports will drop to the lowest since 1978 amid smaller crops and farmer hoarding, the USDA estimates.
Wheat gained 13 percent in 2014, surprising banks including Goldman Sachs that forecast prices would extend last year's 22 percent decline. Instead, futures climbed as Russia's incursion into Ukraine threatened the flow of supplies from the region. Russia was on track to be the fifth-biggest wheat exporter, and Ukraine was set to be the sixth-largest, according to the USDA.
"The world has been consuming more U.S. wheat," Michael Krueger, the president of the Money Farm in Fargo, N.D., said in a telephone interview. "It's a combination of the Canadian shipping woes, reduced crops in Argentina and increased uncertainty about shipments from Ukraine and Russia that's boosting demand and prices."
Wheat futures for May delivery rose 3.8 percent to close at $6.8375 a bushel at 1:15 p.m. on the Chicago Board of Trade, leaving prices up 24 percent from a January closing low of $5.515. A 20 percent gain based on the settlement price marks the common definition of a bull market.
Prices also climbed this year as dry weather threatened winter crops in the Great Plains. Most fields received less than 50 percent of normal rain in the past 60 days, according to the High Plains Regional Climate Center. About 23 percent of the region from Kansas to North Dakota was in moderate-to- exceptional drought as of March 4, Drought Monitor data show. The U.S. is the top exporter.
World food prices posted the biggest gain in 19 months in February on concern that cold weather and drought in the U.S. and hot, dry weather in Brazil will harm crops, according to the United Nations' Food & Agriculture Organization.
The rally will be short-lived according to Goldman analysts that said in a report March 10 they expect planting to increase in the spring. The price will fall to $5.75 in six and 12 months, the bank said.
Purchases from China, Brazil, North Africa and the Middle East increased after prices fell in January to the lowest since July 2010. Global exports will climb to a record 162.1 million metric tons in the year that ends May 31, the USDA said this week.
"The world is consuming wheat faster than people expected," Krueger said. "Rising incomes in Asia are boosting food demand and wheat imports."