Don't get overly bullish Wheat!
Apr 18, 2013
Wheat continues to be somewhat of a sleeper, especially with the recent LARGE purchases by the Chinese. Even though I have been saying there is major upside potential, I have to WARN all traders and producers, if major production glitches don't play out, we could see some major backpedaling down the road. The problem is if US corn production rebounds, as I anticipate it will following the improved soil moisture levels, the wheat "basis" could absolutely get hammered. If corn becomes more readily available on a global scale (increased production in South America, Ukraine, US, etc...) it will leave a significant portion of wheat searching for a home. I have to imagine doors once opened welcoming wheat as a feed ration will quickly be slammed shut. With this in mind don't be afraid to price more bushels and or lock in the basis on the recent rally . I am now moving to 70% priced/hedged in 2013 and 35% priced/hedged in 2014. The backend of the wheat market is starting to be more of a concern to me on a longer-term scale. Growing wheat with prices above $7.00 a bushel (JUL14 trading above $7.50) still tastes good, below $7.00 the taste isn't so sweet.
Black Sea wheat production can not be ignored. Just yesterday the Russian Prime Minister threw out an estimate of a 20 million metric tons plus gain in 2012 Russian grain production. As I pointed out earlier this week, 11.5% and 12.5% protein wheat is trading at a $35 to $55 per metric ton discount to US wheat from late-summer forward. Simply put, our window of opportunity to make large sales may quickly be closing.