Commentary: Floods heighten concern over crops

by Josh Sosland
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Coming on the heels of a record-breaking year for wheat prices, the 2008 Purchasing Seminar sponsored last week by Sosland Publishing Co. was haunted by echoes of 1972 and the extraordinary price moves associated with the Russian Wheat Deal. Only a few days later, it was memories of the floods of 1993 that came to the fore of market attention in the wake of heavy rains that have compounded concerns over row crop planting delays earlier in the spring due to cold weather and wetness.

While the extraordinary floods of 15 years ago thankfully have not yet been matched by this year’s weather, the situation for grain markets is far more perilous than in 1993. Corn prices rose only 20% in 1993-94 after the floods with gains tempered by a generous beginning stocks-to-use ratio of 25%. By contrast, the latest forecast places the stocks-to-use ratio on the eve of the 2008-09 crop year at a threadbare 5.4%.

For wheat, the deteriorating situation in corn raises two immediate concerns. First, wheat prices that had been untethered from corn through 2007-08, appear destined to be lifted by corn prices in the current environment, notwithstanding the dramatic rise in world wheat production. Also of great concern are wheat planting prospects for the 2009 crop year.

Wheat plantings in 2007-08 were up 3.4 million acres from 2006-07, temporarily lifted by record prices and a record price spread above corn. With corn now at record highs and with the wheat/corn spread collapsing, prospects for wheat plantings are worrisome for the coming crop year and beyond.

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