Spring Wheat the King of Bread-Making Keeps Rising

By Stephen J. Lee, Grand Forks Herald, N.D.

Feb. 12–Responding to hot markets the past two weeks, the Minneapolis Grain Exchange on Monday increased the daily trading limits on spring wheat futures from 30 cents to 60 cents. And traders went with it, bidding prices up 60 cents — the new limit — setting price records again.

Cash prices for wheat at area grain elevators, meanwhile, also hit records Monday.

A survey by Agweek magazine of grain elevator prices in eastern North Dakota and northwestern Minnesota on Monday found posted spring wheat prices averaging $17.60 a bushel, up 77 cents from Friday. Some elevators were offering more than $18, with the North Dakota State Mill bidding $18.59, up $1.83 from its posted bid Friday.

Some North Dakota elevators, including in Valley City and Jamestown, offered as much as $20 a bushel Friday, elevator managers said. But those top prices retreated slightly Monday, they said.

In the cash grain market Monday in Minneapolis, spring wheat prices were bid as high as $21.10 a bushel for the top quality stuff, 60 to 80 cents higher than Friday, according to news reports.

It’s all part of an historic and very volatile market for the high-protein wheat North Dakota is famous for — the state grows most of America’s supply — and which is considered the premium bread-making wheat.

“This was one of our busiest days in a long time,” said Bob Lebacken, head of RLM Trading in Grand Forks, who trades wheat futures. “There were a lot of inquiries from farmers, on futures, on options and just kind of general questions on the market direction and what’s affecting it.”

Most farmers are interested in how they can lock in current high prices for next year’s crop, Lebacken said. Only 5 percent, maybe 10 percent, of last year’s crop is still in farmer’s bins, he and other experts estimate.

Prices for the “new crop” — meaning the next year’s crop — are much lower than those for wheat already binned and ready to deliver. But at about $10.50 a bushel — three times prices in most years — new crop futures prices are high enough so that farmers can pretty much guarantee they will make good money next fall on their wheat, Lebacken said.

But if something happens to the crop and the farmer can’t deliver his promised wheat, he would be in a bind. So Lebacken recommends using additional marketing techniques, including futures options and futures themselves, as ways to hedge forward cash contracts.

For the 130-year-old Minneapolis Grain Exchange, the high demand for wheat means big profits.

The institution set a record in 2007 for volume of trade, handling 1.82 million contracts, up 10 percent from the record set in 2006. Just in December, trading was up 46 percent over December 2006. The value of one of the 399 seats on the Exchange has soared, from $73,000 a year ago to $289,000 in a single sale last week, said Nancy Krull, marketing director for the Exchange. Just 30 months ago, a membership in the Exchange was worth less than $20,000.

Upping the daily trading limits should calm the waters, Krull said.

“The expanded limits allows trade to more easily take place,” she said Monday. “When we were at the 30-cent limit, it would go up the 30 immediately and just stay there all day. Trading today was more active because there is a greater window of opportunity with the 60-cent limit.”

If the trading had been, say, another fraction of a cent hotter Monday, the Exchange would have increased the daily trading limit to 90 cents today, she said.

The increased volume has attracted big-money investment funds, part of a run to all commodities by big investors, as the stock market and real estate have not performed well in the past year.

And with the new money comes some interest from media and others, Krull said.

“We are definitely seeing an increase in interest to what is going on in the Minneapolis Grain Exchange,” she said.

Lebacken said there’s a plus side in that for growers.

“I think farmers can look at some of this investment money and say, ‘Thank you,’” Lebacken said. “In many cases, I think they have driven the prices higher than otherwise.”

Lebacken’s firm, RML Trading, LLC, is holding a seminar this week for growers and others with questions on what to do in this historic grain marketing opportunity. Scheduled for 2 to 5:30 p.m. Thursday in the Alerus Center, it features Steve Freed, vice president of research for ADM Investors in Chicago, speaking on “It’s a Wonderful Life: The Grain Outlook in 2008.” For more information, call (701) 775-1008.

Reach Lee at (701) 780-1237; (800) 477-6572, ext. 237; or e-mail him at slee@gfherald.com.

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