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What to Do About Pricing Wheat

August 10, 2010

The market is all over the burned up wheat in Russia, says Jim Bower of Bower Trading. “But it may not yet have factored in the fact that Russia needs timely rains soon for next year’s crop. It almost may not yet have considered the lateness of spring wheat in Canada. A frost in September would be a train wreck there—and that is a very inelastic market, so if supplies shrink prices will respond strongly.”

Russia may do some behind-the-scenes sourcing from its neighbors—Ukraine and Kazakhstan in an effort to stave off shortages, he says. “Keep in mind their fruits and vegetables and dairy all have been affected as well. It’s a very serious situation for them.”

Nonetheless, he is looking to price some wheat. One reason: “At $7.50 to $8, very little wheat is going to be fed globally. People will look for cheaper alternatives—like corn,” he says. “But basis is terrible, in some cases close to $3 under futures. So I’m recommending selling on the board to capture the carry, storing and waiting for basis to improve.”



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