Washington, DC
December 27, 2007
Source:
U.S. Wheat Associates
Wheat Letter - December 27, 2007
In the face of fundamental changes
in the global wheat market, buyers and processors should plan
for a new, higher trading range for the world’s supplies over
the next few years. That was the message Alan Tracy, President
of U.S. Wheat Associates, shared in the opening address to an
estimated 500 participants in the Middle East & Africa District
Conference & Expo of the International Association of Operative
Millers (IAOM), Dec. 9, 2007 in Muscat, Oman.
“Consumer demand for food is growing, crops are competing for
planted area, speculators are more active in commodities and
trade barriers are falling,” Tracy said. “These forces should
push U.S. wheat futures prices into a new range of around $6.00
or more per bushel or about $220 per metric ton, assuming
favorable weather and new crop production grows as expected. If
there are significant production problems, prices are likely to
shoot up again as they have this year.”
Noting that the recent weather-driven spike in world wheat
prices has taken the lion’s share of attention, Tracy pointed
out that rising population and more disposable income in
developing countries is pushing a steady increase in cereal
grain demand. “At the same time, we see a gap between use and
production,” he told the conference participants. “The world has
produced more wheat than we used in only two of the last nine
years.”
The pressure on world wheat stocks is likely to stay fairly
strong, Tracy said. “Demand for vegetable oil, feed grains and
meat is rising even faster than for food grains. Factor in the
biofuels boom and transgenic trait benefits to corn, soybean and
canola producers and you can see that, at least for now, wheat
can only compete for hectares with higher sustained prices.” For
more information about the potential impact of biofuels demand
on wheat prices, see the following article, Energy Bill Should
Boost Grain and Oilseed Demand.
In turn, the run-up in agricultural commodity prices and the
advent of round-the-clock electronic trading has attracted
investors. While it would not be possible for commodity
producers and buyers to use the futures and options markets to
manage price risk without speculators, the high volume of
speculative trading appears to be sustainable. “The people who
grow the grain and the people who actually use it are no longer
the only ones determining prices,” Tracy said. That means wheat
prices will remain volatile as investors move in and out of
their positions.
Finally, Tracy discussed the significant shift away from
protectionist trade policy and its importance to wheat buyers.
Bilateral and multilateral agreements, driven by growing
evidence that trade is an engine for economic development, are
breaking down trade barriers. Tracy said trade liberalization
boosts world economies, which in turn boosts demand for food.
Tracy also suggested that wheat buyers should stay in touch with
local USW representatives who can help them navigate these
uncharted waters. As the organization representing wheat
producers, USW works to add value to high-quality U.S. milling
wheat by providing trade service, technical assistance,
information and market analysis to buyers and processors outside
the U.S.
In addition to Tracy’s address opening the educational session,
USW’s Regional Technical Director Peter Lloyd shared ideas with
IAOM members on how to extract more value from milling wheat.
Later in the conference, USW Vice President John Oades presented
a detailed look at U.S. wheat supply, demand and quality. Click
here or visit www.uswheat.org/wheatLetter and select December
27, 2007, to see all three presentations. |
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