Published: February 27, 2008 11:03 pm      

Grain prices react to short supply worries

“Markets are like airplanes, we haven’t gone and left one up there yet.”

That was the wisdom of Alva commodity broker, Lawrence Baldwin with regard to gesticulations of Wednesday’s wheat future prices.

Baldwin is like any commodities broker worth his salt – reticent to guess what tomorrow will bring. But as his quote above indicates, it might be fair to suggest he believes the only constant in the wheat market this season might be change.

“It is basic economics, supply and demand,” Baldwin said. “If you don’t have enough to go around, then you have to bid it up and make people stop using it.”

Trading in the market today was not what Baldwin would call heavy, but he said it was certainly as active as he has seen in a while.

“Today I would call the market violent,” Baldwin said. “There was a $2.70 trading range and that is dyn-o-mite.”

While the futures market fluctuated, the elevator price – the price a farmer might get if he held his wheat and sold it to an elevator today – went as high as $12.57 according Shaun Colvard, manager of Wheeler Brothers Grain Company of Seiling.

“It is nice to see the farmers here happy,” Colvard said. “They are getting a look at record wheat prices and they like it.”

Many factors are driving the high prices, that in some cases have tripled since this time last year, said Ladd Lafferty, vice president of Wheeler Brothers Grain Company.

“On a localized basis, we had the drought two years ago and while we had a better yield last year, with all the rain, the quality was not too good,” Lafferty said.

He also indicated that while the yield here improved somewhat last year, it was still considered a poor year. “We didn’t bust 100 million bushels and while that is not like the 80 million we did the year before during the drought, it still is not that good,” Lafferty said.

That has left a demand for wheat that was not produced for two years running, he said.

But it takes more than just poor local or even U.S. production to manipulate the wheat futures, Lafferty said.

An announcement, recently, from Russia regarding its decision to restrict its own wheat exports and now, rumors of a move in that same direction by Kazakhstan have tipped the scale for large speculative firms who have entered the commodities market recently, Lafferty said.

These traders, whose trades are large and noticeable to a market, appear to believe this short supply of hard-red wheat might just stretch into the year and keep prices high. That kind of action stimulates the price of wheat, Lafferty said.

But Lafferty cautions that wheat production this year could impact those prices.

“If we have a pretty good harvest throughout the world, with no disasters in the northern and southern hemisphere, we could see that price come back down,” Lafferty said.