USDA Report Day

[charliep]

Just a note that USDA released their September numbers today.

Report was positive wheat (included issues Canada and Australia) and soybean/oilseeds. Slightly negative corn/feedgrains but will go for the ride with wheat. Interesting to see US corn exports at high levels as grain importing countries seek alternative sources/shift what they are using in livestock rations. Will have to watch ocean freight costs/ability to move product carefully.

Realize everyone is really busy with (and concerned about) harvest. I also know everyone has other market information sources. Still encourage people to post straight market information/strategies versus continuous non stop CWB policy. I suspect the CWB debate will still be going on after harvest.

[AdamSmith]

Wheat Price Rises to Record $9 a Bushel on Global Crop Concerns

By Madelene Pearson and Danielle Rossingh

Sept. 12 (Bloomberg) -- Wheat surpassed $9 a bushel for the first time as a drought in Australia and Canada cut production, pushing global stockpiles toward a 26-year low.

The U.S. Department of Agriculture today cut its estimate of Australia's wheat crop to 21 million metric tons from last month's estimate of 23 million tons. Some analysts expected the USDA forecast to show Australian production would be as low as 15 million tons. Canada will produce 20.3 million tons, a 5.6 percent drop from August's estimate, the USDA said.

Increasing demand from Egypt to India and weather damage to global crops have driven up prices in Chicago by 79 percent this year. Users including Kellogg Co., the biggest U.S. cereal maker, General Mills Inc, Sara Lee Corp. and PT Indofood Sukses Makmur, the world's biggest producer of instant noodles, are responding by raising prices, fueling inflation.

``The market is in a real frenzy,'' said Tobin Gorey, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``It's feeding through to the consumer.''

Wheat for December delivery rose 8.75 cents, or 1 percent, to $8.9925 a bushel at 10:40 a.m. on the Chicago Board of Trade, after earlier reaching $9.1125 in overnight trading. The most- active contract has more than doubled in the past year.

Egypt, Jordan, Japan and Iraq plan to buy 460,000 tons of wheat. India is seeking to import 5 million tons this year to replenish its inventories. The grain, used in livestock feed, noodles, cakes and bread, trades in 60-pound (27.2-kilogram) bushels, each with enough grain to make 73 loaves, according to the Web site of Lake Oswego, Oregon-based bread.com.

Global Rally

Milling wheat for November delivery on the Liffe exchange in Paris rose 3.75 euros, or 1.4 percent, to 279 euros ($387) a metric ton as of 5:13 p.m. local time. That's equal to $10.53 a bushel. Prices have doubled in the past 12 months. Prices have gained 84 percent this year and climbed to a record 285 euros on Sept. 6.

On the South African Futures Exchange in Johannesburg, wheat for December delivery rose 65 rand, or 2.1 percent, to close at a record 3,242 rand ($452) a ton.

Rising prices of food, from wheat to milk and pork, are stoking inflation at a time when traders expect the U.S. Federal Reserve to cut interest rates to bail out the housing market and avoid a recession. China's inflation rate accelerated to a 10- year high in August, fueled by food prices.

``When you look at grains prices from a historical perspective, they're actually not that high,'' Daniel Edzes, who grows sugar beet, grains and potatoes on his 50-hectare (120- acre) farm in the north of the Netherlands, said in an interview today. ``Wheat prices right now are trading at about the same level as when I first started farming 35 years ago.''

Smaller Australia Crop

The harvest in Australia, forecast by the USDA to be the world's second-largest wheat exporter this year, may be as low as 15 million tons, Rabobank Group has said. The government forecaster, the Australian Bureau of Agricultural and Resource Economics, estimated the crop in June at 22.5 million tons, more than double last year's drought-damaged total of 9.9 million. Its next update is scheduled for Sept. 18.

Dry weather in central and southeast Australia may persist in the ``short-term'' as cooler ocean temperatures restrict the formation of rain-producing clouds, the Melbourne-based Bureau of Meteorology said today.

``Australia's not going to have a good crop, we know that,'' said Tom Leffler, owner of Leffler Commodities LLC in Augusta, Kansas. The country's crop may still thrive if enough rain falls in the next 30 days, he said. ``I'd be cautious about writing Australia off.''

Declining Inventories

Global wheat supplies are expected to decline to 112.4 million tons by the end of the marketing year on May 31, 2008, the USDA said today in Washington, down from last month's estimate of 114.8 million tons. The U.S. is the world's biggest wheat exporter.

Barley prices in Winnipeg, Canada, gained 41 percent in the past year on increased demand for animal feed and for brewing beer. Canada is one of the world's biggest barley producers. Corn has gained 53 percent in the same period, as demand for grain-based ethanol surged.

Downers Grove, Illinois-based Sara Lee, maker of the bread of the same name and Jimmy Dean sausages, said yesterday it will keep increasing prices to cover higher commodity costs. Australian Agricultural Co., the nation's biggest rancher based in Queensland, said cattle prices will need to rise.

Premier Foods Plc, the U.K.'s biggest producer of cakes and instant soup, on Sept. 4 said it may further increase prices for its Hovis bread brand and other products.

``There's not a lot they can do about it,'' Jonathan Banks, an analyst at ACNielsen in London, said in a Sept. 10 interview. ``They're getting a big hit. They have to put the price increases through because it's not an inherently profitable category to begin with.''

Asian Food Prices

Indofood Sukses Makmur, based in Jakarta, will increase flour prices in each of the next four months to pass on costs, Franciscus Welirang, vice president-director in charge of the flour division, said by phone today.

Japanese bakers and millers are studying price increases.

``Flour prices will rise in the near future and we are considering raising prices for our products,'' said Fuminao Wake, a spokesman for Yamazaki Baking Co., Japan's largest bakery.

Nisshin Seifun Group of Japan, a miller, is considering raising flour prices for the second time in six months, after an increase in May that was the first in 24 years.

[charliep]

Interesting that corn and beans are getting a nice boost today. The hard wheat futures are also playing a little catch up with CBT (mainly Soft red winter wheat).

[charliep]

Just a comment but everyone seems to key in on $9/bu wheat futures (CBT but both MGE and KCBT seem headed there. I find the possibility of $10/bu soybean futures and 40 cent/pound soyoil futures equally interesting. CBT corn isn't $4/bu anymore but will need to follow the export side.

Also watching the loonie - seems ready to break out to the next level on the move to par with the US buck. Oil seems destined to move about $80/barrel. Will also be following the equity markets (as cottonpicken has highlighted).

Finally have to toss in some livestock side outlook. Looking at some pretty ugly margins ahead (particularly here in Canada) with some downsizing likely.

[BFW]

I have to agree with you Charlie, the livestock industry's only chance for survival on the Canadian prairies in the environment we are in is to downsize. The packers are already doing it(killing at 70-75 percent capacity) so the feeding and cow calf production sectors must also eventually rationalize to those levels and you fight this at peril to your equity. As a grain farmer and cattlefeeder I welcome higher grain prices as a long needed injection into the ag economy but for the livetock industry to survive in this country we cannot feed $4.00/bu barley and our competitors in the US feed $3.00/bu corn. That is just a cold, hard fact.

[furrowtickler]

BFW - Do you think it is time that cattleman think outside the box just a little bit? There is alternatives to feed barley. For the most part grain farmers in weatern Canada have been growing barley, even malt at a netloss for some time. $3.5 - $4 barley should be the norm, as with $8 - $9 canola and $5 -6 wheat. Everyone has been growing grains for a loss for years givin inflation/input costs. I for one hope this is the norm for grain prices and hope that beef prices go up accordinling - and very soon.

[BFW]

I think that economics will force feeders to think outside the box , Furrowtickler. If grain stays high cattle will be fed to larger weights on commodities available more readily and at lower cost (grass and hay) before entering the finishing phase. Perhaps some grass finishing will occur if a market for that product becomes available. One thing for sure is that here in western Canada we will have to become more opportunistic in our sourcing of feedstuffs than simply relying on an endless supply of barley and silage to feed our livestock.