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Wheat Prices Spiral; Analysts Predict Continued Volatility by Matthew Weaver Capital Press, March 8, 2022

Commodity prices made the biggest jump in 50 years last week, and wheat market analysts say the future remains unclear.

"This is far from normal," said Darin Newsom, a market analyst in Omaha, Neb. "We have an extremely volatile situation right now where ... the heaviest-traded futures contract and the heaviest-traded market can't find a way to trade."

The Chicago Mercantile Exchange Group on March 7 increased its daily limit to 85 cents per bushel, with an expanded limit of $1.30 per bushel.

That means the Chicago and Kansas City wheat markets have a $1.30 daily limit, so prices could go up or down a maximum of $1.30 a bushel, Newsom said.

If the market does not reach that limit today, it will drop back to 85 cents, Newsom said.

In its announcement, the CME Group said the amended daily price limit will continue until the next regularly scheduled daily price limit reset in May.

Russia's invasion of Ukraine takes 29% of global wheat production out of the picture, and the world is trying to find a new equilibrium price, Newsom said.

The market could trade higher than daily price limits allow, said Byron Behne, senior merchant at Northwest Grain Growers in Walla Walla, Wash.

The May 2022 wheat futures price on the Chicago market is $12.94 per bushel. On Feb. 17, the May price was $7.81, an increase of $5.13 in three weeks, Behne said.

"We've never seen anything like this before in this amount of time," he said.

The volatility will likely continue until there's a ceasefire agreement or the war ends, Behne said.

"Prices are at least probably $3 per bushel too high," he said. "It won't take very much time at all to take that back out of the market. In the meantime, though, I don't know, futures could run up to $15, $20. There's really no limit as to how high that could go."

That's driven by outside investors who buy wheat futures to diversify their portfolios, he said.

The May 2023 wheat futures price is $9.09 per bushel, said Dan Steiner, grains merchant at Morrow County Grain Growers in Oregon.

"What the market is trying to do is say, ‘Eventually this thing will get over with,'" he said.

The U.S. wheat supply is "more than adequate," but the world wheat supply is "tenuous at best," Steiner said. Major importers still need product, but there's less market access.

Higher prices for fuel and cereal grains are part of demand destruction, Steiner said.

"Unless you increase the supply ... you have to destroy demand, and the only way you're going to destroy demand is to jack the price up or wreck the economy," he said. "People are going to have to change their diet, because there simply will not be enough grain, especially if this thing goes long-term."

Cash prices have not been affected yet, Steiner said. Wheat out of the Black Sea region has shut down, but it hasn't translated into cash sales in the U.S. yet. Cash prices will have to remain "steady and strong," he added.

Soft white wheat on the Portland market ranged from $11.25 per bushel to $11.80 per bushel. It ranged from $10.50 to $11 per bushel a month ago.

"It's going to go up until it quits going up. ... (When) markets hit their tipping points, there's no warning and then they just fall," Newsom said. "Wheat is notorious for this sort of thing, particularly in a situation where you just keep locking limit up, limit up, limit up and CME is expanding its limits. It just opens the door for a market collapse at some point, we just don't know when and we don't know where."

Behne recommends farmers looking to sell wheat avoid the futures market.

"It's so risky right now," he said. "I was a big proponent of (hedge-to-arrive contracts) when futures were $7, $8, $9, but in this last week, I would stay away from that."

Newsom recommends farmers sell a little old-crop wheat at a time.

New crop wheat is "a different animal all together," he said.

"We aren't guaranteed production anywhere when it comes to wheat, but sell a little," he said. "These are incredible prices. Could it go higher? Absolutely, but at some point, we're going to get caught, we're going to get stuck in this market that is done going up and starts going down. To one's comfort level, sell a little bit ... but keep some powder dry. There's no telling when the end of this is going to come."

"What do I think is going to happen?" Steiner said. "I don't really know, but I don't think this thing is going to be resolved quickly."