Why I Like Wheat
Jun 02, 2011
Yes, there has been a lot of bearish wheat news to digest as of late, but let's not forget that the world's top exporter, the good o'l USA is in the midst of a massive drought in several key wheat growing regions, and is looking down the barrel of a million acre reduction in Spring wheat planting, and serious conditions in a large portion of our soft winter wheat crop. Not to mention wheat acreage abandonment is running wild, and there is talk that hard red winter wheat output here in the US might fall by some several million metric tons because of poor growing conditions. Throw in additional cuts coming in Canada, areas of Europe, and China and you can see a strong bull story is still intact. The other issue I see unfolding is that the quick rise in domestic Russian wheat prices the past few days has the Russian Central Bank up in arms, and looking for the government to step in and take some type of action before runaway food inflation sets in. From what I hear, they are asking that the government to quickly place some type of duty or tariff on exports so that food inflation simply doesn't take off like it has in so many other countries. With Russian inflation already in the double digits they can hardly handle more rising prices. It is my belief along with many others that Russia will soon be forced to take some type of action. If they allow exports to poor out of the country their consumers may be paying dearly in the not so distant future. Just as we have seen from other countries, when the price of food starts to become extremely expensive, the home town folk tend to get a little restless. I highly doubt the Russian government wants to go down that road. I will be very surprised if Russia allows exports to continue unrestricted. Something else to consider is that wheat has once again fallen back to equal valuation to corn in the July contract. Bottom-line I see value in wheat, particularly the higher protein KC and Minneapolis Wheat. I also like the Chicago wheat contract as well. I have been telling you for sometime, I wanted to get long the wheat market just before the producers started harvesting the bad areas, and right after Russia announced they would be getting back in the export business. Guess what, they are both upon our doorstep. From where I sit, I have to jump in this market. I certainly stand a chance of coming up empty handed with the "outside" markets continuing to work against us, but I will be kicking myself all year if I don't pull the trigger now on a market I have been closely monitoring. I simply don't think the yield is there, and I don't think the acres are going to be there either. Watch out bears, I am sharpening both horns... Remember, Only Buy On The Breaks!
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