CROPS

I n 1972, 41 years ago, the front month futures traded in Chicago wheat reached a high of $2.73 per bushel, considered then an extremely high price. The low that year had been $1.41. The lid finally came off the next year when the then USSR kicked off "The Age of Volatility" with huge wheat buying for import. Wheat reached prices in 1973 that no one had ever seen before, with highs over $5.50 per bushel.

It was wonderful for producers, if they managed to keep their wits about them amid the flood of money! Many new combines were purchased, but the time also marked the beginning of dramatic increases in the costs for farming inputs, like diesel, fertilizer, labor, etc.

Using all the subsequent prices since as a base, the statisticians tell us that the annual central point for the price of wheat has gently risen from about $2.50 to around $5.50 today, with some wild swings to the upside ($13.50 for a few minutes in 2008) and back down again to the new "normal" in the $5.00 to $7.00 range. All of this history is the background for an attempt to set perspective. Is wheat, trading around $7.00 to $7.25, at a "high" price or a "low" price?

Since about 2006 - the last 8 years of wheat trade - we have seen wider swings in price than at any time previously. The mid-range of these years has been between $7.00 and $8.00 per bushel for Chicago. Other varieties of wheat have reflected similar ranges, including Pacific Northwest white wheat.

Business is getting done at these prices. The world's wheat production is more diversified, with more sources of exports than ever. A pattern of ever-increasing demand for wheat is unlikely to change much. Given these recent years' price behavior, current levels are in the middle, neither low nor high, but with a very large potential in both directions.

The only currently visible factors that could have the power to alter the pricing patterns of wheat from the present general ranges are outside of the wheat/grain supply and demand balance sheets. It is highly likely the currency and interest rate markets will dominate the next decade of wheat price trends as much as weather or any other practical factor. Occasional extreme price reactions to various government financial actions seem inevitable. This has the tendency to raise the pressure on wheat marketing decisions.

The price trend of Chicago wheat in the last 90 days is sideways amid a range between $7.40 and $6.60, with current prices around the exact midpoint of the range. Every technical measure seems to be resting on dead-center. Sometimes this is like the market is holding its breath before a plunge in either direction, but today there is no looming fundamental production problem. It is the global economy that has market observers looking over their shoulders. It's a time to "hide and watch", as cousin Terry says. It is definitely not a time to become complacent.

Information and opinions contained herein come from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.