Views on commodities and energy
Spring wheat … is Canada squeezing bread?
World wheat prices are soaring to record heights, but the rally has been particularly sharp for high-protein spring wheat, used to make bread. Minneapolis March spring wheat futures have jumped more than 85 percent since farmers in Canada and the U.S. northern plains finished harvesting a small crop that was quickly swamped by demand by panicked buyers. Winter wheat varieties traded in Chicago and Kansas City have lagged behind.
But since Jan. 9, the contract has been on a steep upward climb that has traders talking about shorts getting squeezed… especially the Canadian Wheat Board, which has a monopoly on sales of spring wheat from the Prairies to millers and export markets. I talked to Curt Denisuik, the CWB’s director of commodity risk management, about the rumors on Feb. 6. He declined to comment on commercially sensitive details about the CWB’s position. But he said the main reason for the climb was the shortage of wheat:
“I know there’s lot of people who are speculating that the Canadians are the reason that the market is going higher. But really, you need to look at the supply and demand for wheat. What the numbers kind of tell you when you look at that supply and demand analysis, is they (U.S. exporters) have been selling more on a per-week basis than they need to to meet those export numbers. The market is trying to attract … every last bushel in the bin. If these prices can’t do it, then the market will go higher, or someone will have to cancel a sale, and take a different alternative.”
“The other comment that I want to make about our position is that you need to understand with U.S. futures, the delivery process is such that the taker of delivery … has the right to request certificate of U.S. origin for any grain it receives. Of course, as the supplier of Canadian grain, we can’t supply that, and we never put ourselves in a position of either making or taking delivery. We don’t participate in the delivery process in the U.S. futures. We are very confident that we will not be participating in the delivery process for the March futures in Minneapolis.”
Q. As you mentioned, there’s a lot of speculation that the board has been caught short or is getting squeezed. Can you speak to that?
A. “There are a number of participants in the market. We’re comfortable with our share of the open interest. The market is trying to set the price for the grain it requires in March delivery position. It’s influenced by a lot of things and I can’t see that our position is a driving factor behind that. That’s not to say that others might view it differently.”
Q. Obviously there’s scare supplies, but for Minneapolis futures, does the story go beyond supply and demand, seeing it locked limit up each day?
A. “There’s some discussion about the appropriateness of 30-cent limits… As a seller, we’d prefer obviously for the market to get to its trading level faster. But the reason that 30 cents (per bushel) isn’t appropriate any longer is because we’ve had this dramatic move up in price levels. What was appropriate when prices were at $5 (per bushel) clearly isn’t appropriate when prices are at $10 or at $15 or above. You should probably have 60 or 70 or 80 cents, and that’s probably more than the market wants to handle. They want to be able to make sure that they can adjust margins and all the aspects that make a marketplace work have to be taken care of.”