Prices of top-quality wheat jumped 25% Monday (marking the biggest one-day leap ever) to a record high, as Kazakhstan (one of the world's largest exporters of the grain) said it would impose export tariffs to keep sales down.
These tariffs, which follow similar export restrictions in Russia and Argentina, are putting further pressure on already tight global wheat supplies.
Kazakhstan's minister of agriculture said the government wanted to limit exports, as it battled against rising inflation of nearly 20%. Kazakhstan grain is similar to some of the scarce top-quality North American wheat that jumped in price Monday.
The price of spring wheat has more than doubled since January, and has risen fourfold in the past year-contributing to a rise in global food inflation. The end users, millers and bakers who needed wheat are panicking-and those who were short wheat are being forced out of their positions. Relating this to past history is useless; markets typically do not trade this way!
A prominent food industry consultant predicted 7.5% annual U.S. food inflation over the next four years vs. 4.9% in 2007 and a 2.9% average from 1982-2006. You can make a strong case that biofuels, a weak dollar, escalating geopolitical concerns and increasing global incomes will force U.S. food inflation higher-similar to the early ‘70s, when the food component of consumer price index advanced 33%. But unlike prior short supply-driven price spikes that corrected following a return to normal yields, food commodity price supply strength is unlikely to ease against a backdrop of demand growth exceeding gains in yield productivity. These are bull markets. Play the grain markets from the long side and buy weakness until proven otherwise.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. 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. Past performance is not necessarily indicative of future results.
