US spring wheat, prized by millers and bakers for its high protein content, upstaged the more actively traded winter wheats this week by soaring to a record-high price, setting the stage for more surprises through the year. Fuelling the rally in hard red spring wheat, traded at the Minneapolis Grain Exchange, has been tight supplies.
The US Department of Agriculture projects ending stocks to drop to 88 million bushels by the end of the marketing year on May 31, the smallest spring wheat surplus in at least 30 years.
And the next US harvest won't begin until August. Yet demand from both domestic millers and exporters remains strong. As a result, the MGE March spring wheat contract on Friday surged to $11.94-3/4 per bushel, the highest-ever price for any US wheat futures contract.
Analysts were reluctant to predict how high spring wheat prices could go. "There is an inelastic demand for food use in a commodity where there are no cheaper alternatives. It's hard to cut usage," said Dan Cekander, an analyst with Newedge USA.
"Anyone in recent history has just not had that experience, where you could literally run out of wheat in certain classes." The surge in Minneapolis this week lifted wheat futures at the much larger Chicago Board of Trade, the world benchmark for wheat, and the Kansas City Board of Trade. A year ago, the spot Minneapolis wheat contract was trading at close to $5.
"I think we've got to guard against thinking that $11 spring wheat is expensive, because apparently it's not expensive enough to slow down usage yet," said Rich Feltes, senior vice president and director of commodity research for MF Global in Chicago.
He noted that out of the 404,800 tonnes of US wheat sold for export last week, the largest share among the five main US wheat classes was hard red spring, which accounted for 174,600 tonnes, according to the USDA.
Hard red spring wheat made up 22 percent of the US 2007 wheat crop of 2.067 billion bushels. Hard red winter wheat, traded in Kansas City, was the largest class at 46 percent.
Soft red winter wheat, the type traded at the CBOT, comprised only 17 percent. But the CBOT futures market is the most liquid and largest US wheat exchange. The cash market for spring wheat remains firm, a factor underscored by a hefty 55- to 60-cent premium for front-month MGE March futures over May. Back contracts normally trade at a higher price, reflecting the cost to store grain - except during times of strong, immediate demand.