Wheat Prices Will Fall as Demand Dries Up

Some traders are looking for any tidbit of information to keep the wheat prices up, but I don't think they can hold for too long.

Much of the argument for wheat prices holding is the dry weather in a couple regions in South America.

But with prices higher now than the fundamentals warrant, it's hard to believe people seriously think losing a little bit of the global crop will really make much difference. There's so much wheat available that it would take something of epic proportions to keep prices up.

Even add in the possibility that the cold front in the U.S. may damage some wheat crop if there isn't any snow cover, and that still doesn't change the fact of the huge global supply available.

Most of what's been driving the prices up over the last couple months has been the re-entry of some funds into the market, along with the soybean rally. Over the last 6 weeks wheat futures have risen approximately 25 percent.

With demand so low, I don't see that being able to continue in any sustainable way in the months ahead.

The one unknown is when the U.S. dollar will start collapsing under the weight of the huge amounts of money being used to stimulate the U.S. economy. That would of course make exporting wheat much cheaper, and could increase sales.

The problem is there's no way of knowing how long that will take, so it can only be watched for, not counted on, as far as timing goes. When it does happen though, it will be a boon to commodity producers in the U.S.

Concerning demand, the USDA on Monday projected the ending stocks for U.S. wheat in 2008 - 2009 stand at 655 million bushels, an increase of 32 million from December's estimates. With nowhere to really send that wheat, as demand is so soft and wheat so plentiful, it will stay in storage until there's someone to sell it to.

Even that will continue to be a challenge as for the same time period, wheat consumption accroding to the USDA estimates, are being lowered.

Livestock markets have no interest at this time in buying either, as they're struggling as much as anyone else, with exports down and profits under pressure. Cost inputs and lower priced global wheat remains major factors in these decisions.

While there's nothing that can be done about it now, the real problem stems from last years' prices, where everything went right for U.S. wheat farmers, and supply was down globally. Farmers responded predictably by putting more wheat in the ground for this season, contributing in part to the current glut.

This wasn't too smart, as the chances of having two years in a row like that are almost nil, and they knew foreign farmers would respond the same at lower costs. Farmers, as well as anybody in business must learn if they missed it this time around, there's not much guarantee they hit it the next.

It's expected that spring wheat acreage planted this year will drop, especially if prices don't come back, which they are highly unlikely to do.